The Economic Consequences of the Dutch: Economic Integration around the North-Sea, 1500-1800 [Aksant Imprint ed.] 9052602913, 9789052602912

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Copyright © 2008. Amsterdam University Press. All rights reserved. van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Copyright © 2008. Amsterdam University Press. All rights reserved.

The economic consequences of the Dutch

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Copyright © 2008. Amsterdam University Press. All rights reserved. van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

The economic consequences of the Dutch Economic integration around the North Sea, 1500-1800

Copyright © 2008. Amsterdam University Press. All rights reserved.

Christiaan van Bochove

Aksant Amsterdam 2008

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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ISBN 978.90.5260.291.2 © Copyright 2008 Christiaan van Bochove and Aksant Academic Publishers, Amsterdam. All rights reserved, including those of translation into foreign languages. No part of this publication may be reproduced in any form, by photoprint, microfilm or any other means, nor transmitted into a machine language without written permission from the publisher. Lay-out and cover design: Ruparo, Amsterdam Cover: Dutch timber ships for the Scandinavian coast, c. 1600. Painting by an anonymous painter (Amsterdams Historisch Museum, Amsterdam). Aksant Academic Publishers Cruquiusweg 31 1019 AT Amsterdam The Netherlands www.aksant.nl

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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Contents Acknowledgements

12

Chapter 1 Introduction 1.1 The context 1.2 The analytical framework 1.3 A note on transport costs and economies of scale 1.4 Setup of the book

16 16 22 24 27

Chapter 2 The integration of goods markets in northern Europe 2.1 Introduction 2.2 Theory and historiography 2.3 Convergence and price gap components 2.4 Synchronisation of price movements 2.5 Conclusion

30 30 32 39 47 54

Chapter 3 Labour markets and wage convergence 3.1 Introduction 3.2 Data and considerations

56 56 58

3.3 Wages in northern Europe 3.4 Labour market and economy in Scotland 3.5 Labour market and economy in Norway 3.6 Conclusion

63 77 83 87

Chapter 4 The integration of Denmark-Norway in the Dutch capital market 4.1 Introduction 4.2 Danish private and semi-private companies and the Dutch capital market 4.3 Dutch credit to the Danish Kings

90 90 92 101

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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  |  The economic consequences of the Dutch

4.4 Considerations regarding interest rates 4.5 Base rates and transaction costs 4.6 The additional premium 4.7 Conclusion

106 113 118 124

Chapter 5 Dutch foreign investment in a broader perspective 5.1 Introduction 5.2 Reconstructing and comparing Dutch foreign investments

126 126 127

5.3 Types of Dutch foreign investment 5.4 London, Copenhagen or Amsterdam? 5.5 Effects on receiving economies and international capital markets 5.6 Conclusion

137 142 149 152

Chapter 6 Relative prices, markets and consumers 6.1 Introduction 6.2 The absence of a sawmilling industry: the arguments 6.3 Relative prices as alternative explanation 6.4 The construction industry 6.5 Shipbuilding 6.6 Resistance to sawmills 6.7 Conclusion

154 154 157 163 174 186 191 194

Chapter 7 Relative prices, markets and producers 7.1 Introduction 7.2 The arguments 7.3 Relative prices and alternative strategies 7.4 Interaction between the Dutch and Norwegian sawmilling industries 7.5 Conclusion

196 196 198 201 210 218

Chapter 8 Conclusion 8.1 Research results 8.2 Interpretation 8.3 Concluding remarks

222 223 229 232

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Contents  |  

Appendix I Grain prices and data properties Appendix II Nominal wages, metallic content and grain prices Appendix III Constructing welfare ratios for Copenhagen and Stockholm Appendix IV List of Dutch loans provided to the Danish Kings Appendix V List of Dutch loans provided to semi-private companies Appendix VI List of Dutch plantation loans Appendix VII Estimating Dutch investment in England, 1694-1791 Appendix VIII Dutch and English imports of balks and sawn pieces from the Baltic, 1600-1795 Appendix IX The price of a Dutch sawmill

266

Summary in Dutch

268

Bibliography

276

Index

308

236 242 248 252 254 256

264

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234

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  |  The economic consequences of the Dutch

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List of Figures Figure 1.1 The North Sea region around 1650

20

Figure 2.1 Supply, demand and the price gap

33

Figure 2.2 Shifting demand and supply functions

35

Figure 2.3 Price formation during temporary shocks

37

Figure 2.4 CVs for four sets of towns, 1700-1780

41

Figure 2.5 CVs for two sets of towns, 1600-1780

41

Figure 2.6 Real transport costs of shipping rye from Gdansk to Amsterdam, 1590-1760 (rates as a percentage of the price of rye in Amsterdam and Arnhem)

43

Figure 2.7 Nominal freight rates for shipping on three northern European trade routes, 1600-1670 (in Dutch guilders per last)

44

Figure 2.8 Real transaction costs of wheat in Amsterdam, 1580-1800 (rates as a percentage of the price of wheat)

45

Figure 2.9 CV of the ten-town sample, 1700-1780

53

Figure 3.1 Locations for which wage data are available

64

Figure 3.2 Silver wages in Edinburgh in relation to silver wages in the western Netherlands, 1550-1800

80

Figure 4.1 Dutch investment in semi-private companies, share ownership in the Asiatic Company and plantation loans, 1750-1800 (in millions of guilders)

101

Figure 4.2 Outstanding Dutch credit to the Danish Kings, 1560-1800 (in millions of guilders)

105

Figure 4.3 Nominal interest rates charged to the Danish Kings, 1560-1800

106

Figure 4.4 Schematic representation of interest rates charged by Dutch creditors

112

Figure 4.5 Income from the Sound toll (in millions of rigsdalers)

124

Figure 5.1 Dutch foreign investment, 1710-1800 (in millions of Dutch guilders)

128

Figure 5.2 Dutch investment in England, 1690-1800 (in millions of Dutch guilders)

133

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Contents  |  

Figure 5.3 GDP-corrected Dutch investments in England and Denmark-Norway (Dutch guilders ÷ 1990 Geary-Khamis dollars)

135

Figure 5.4 Dutch holdings of English equity and debt instruments, 1694-1791 (in percentages)

140

Figure 5.5 Securities market capitalisation in England and Denmark, 1690-1800 (in percentages of GDP)

144

Figure 5.6 Dutch share in English and Danish government debts, 1690-1800

151

Figure 6.1 The number of balks auctioned in Dordrecht and the Zaan and balk imports from the Baltic, 1650-1800

161

Figure 6.2 The Zaan region

162

Figure 6.3 Cost curves for two technologies

165

Figure 6.4 Wage ratios of sawyers to building labourers in the western Netherlands and southern England, 1500-1700

166

Figure 6.5 Wages of sawyers in southern England and the Netherlands, 1500-1700 (in grams of silver) 172 Figure 6.6 Population size of Holland and England, 1541-1801

175

Figure 6.7 Ratio England:Holland of number of people per balk and sawn piece, 1665-1795 (logarithmic axis)

179

Figure 6.8 English imports of wainscot boards, 1700-1808 (in hundreds of 120 pieces) 181

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Figure 6.9 English imports of wainscot boards (hundreds of 120 pieces) and the number of German timber rafts to the Netherlands, 1700-1796 183 Figure 6.10 English imports of wainscot boards (hundreds of 120 pieces) and the number of timber auctions in the Zaan region, 1700-1796 184 Figure 6.11 The number of German timber rafts going to the Netherlands and the number of wainscot-producing sawmills in the Zaan region, 1700-1796 184 Figure 6.12 English imports of wainscot boards (hundreds of 120 pieces) and the number of wainscot-producing sawmills in the Zaan region, 1600-1810 185 Figure 6.13 Tonnage (x 1,000) of Holland’s and England’s merchant marine, 1550-1800

187

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10  |  The economic consequences of the Dutch

Figure 6.14 Merchant sailors and balks imported from the Baltic, 1730-1795

190

Figure 7.1 Cost curves for four technologies

203

Figure 7.2 Map of Norway with some of the locations mentioned in this chapter

205

Figure 7.3 Processing various pieces of timber using multiple blades

211

Figure 7.4 Piece rates for sawing a great hundred deals of different lengths in Amsterdam, Rotterdam and Zaan region (in 1700 guilders per foot)

212

Figure 7.5 Amsterdam 1632 piece rates for sawing balks under 18 thumbs width (in guilders per cut)

216

List of Tables Table 2.1

The integration of two wheat markets with Amsterdam

49

Table 2.2

Integration of wheat markets in northern Europe with Amsterdam, 1600-1799

50

Postage for sending letters from Christiania to a selection of towns in 1650 and 1743 (in skillings and grams of silver)

53

Wages in the Netherlands and Belgium (in grams of silver and litres of wheat or rye)

66

Table 3.2

Wages in England (in grams of silver and litres of wheat)

67

Table 3.3

Silver wages in northern Europe (in grams of silver)

68

Table 3.4

Rye wages in northern Europe (in litres of rye)

68

Table 3.5

Wheat wages in northern Europe (in litres of wheat)

69

Table 3.6

Silver wage ratios in comparison with the western Netherlands

71

Rye wage ratios in comparison with the western Netherlands

72

Wheat wage ratios in comparison with the western Netherlands

73

Welfare ratios of labourers in northern Europe

76

Table 2.3

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Table 3.1

Table 3.7 Table 3.8 Table 3.9

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Contents  |  11

Table 3.10 Welfare ratios of labourers in northern Europe in comparison with the western Netherlands

76

Table 3.11 Urbanisation rates in Norway, 1500-1800

84

Table 4.1

98

Table 4.2

Interest rates on pantloans in Viborg, 1651-1750

108

Table 4.3

The Dutch creditors of the Danish Kings

114

Table 4.4

The additional premium on loans to the Danish Kings

122

Table 5.1

Dutch holdings of foreign government loans (in millions of Dutch guilders and percentages)

130

Geographical distribution of Dutch foreign investment at the end of 1771 (in millions of Dutch guilders and percentages)

130

Dutch investments in England and Denmark-Norway divided by type (in millions of Dutch guilders and percentages), 1630-1800

139

Ratio of sawn pieces to balks in Holland and England for seven selected years

179

Table 7.1

Hypothetical rates of return of a silkesag

204

Table 7.2

Total costs of running 13 Norwegian sawmills at the beginning of the eighteenth century

207

Table 5.2

Table 5.3

Table 6.1

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Places of origin of the creditors of two Norwegian merchants

Table 7.3

Timber production of the largest Christiania entrepreneurs 209

Table 7.4

Norwegian and Dutch production costs: the price of a saw cut

214

Table VII.1 Estimates of Dutch holdings of English shares and bonds, 1694-1791 (x 1,000 Dutch guilders)

261

Table VIII.1 Dutch and English imports of balks and sawn pieces from the Baltic, 1600-1795

264

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Acknowledgements While writing this dissertation various people have provided all sorts of support. The first who should be mentioned is, of course, Lex Heerma van Voss, who supervised the writing of this dissertation at the International Institute of Social History in Amsterdam. Lex faced the perhaps difficult task of applying to the Netherlands Organisation for Scientific Research (NWO) for a research project and then having to leave a lot of the actual research to be done by others. Instead of looking over my shoulder all the time, he left me totally free to pursue the ideas I had about my topic. This has enabled me to write a book that – although it undoubtedly contains many aspects that Lex would originally have envisaged to be in it – I feel I can call my own. I think it is a good thing when a supervisor can create such a feeling. Although occupied with supervising a number of other PhD researchers and with his responsibilities at the Institute, during my research I have never felt that Lex was not there to comment or give advice, not even when I sent him papers at inconvenient moments, or when I confronted him with tight deadlines. And although it is of course difficult to compare him with other supervisors, I feel fortunate to have had Lex supervise my research. Within the project Close encounters with the Dutch, of which the present book is a part, I had the luck of working with Jelle van Lottum. Jelle and I started on the same day, shared an office and have worked closely on our respective projects during the past four years. We often faced similar problems and due to a fruitful exchange of ideas, literature and data, we were able to help each other out frequently. Outside the Institute, we have a shared passion for sports; both watching it and participating ourselves. The Amstel Gold Race of 2006, when we climbed one of the steepest hills in the Netherlands – the Keutenberg – and triumphantly raised our hands together when we reached the top, is illustrative for me of the friendly and pleasant atmosphere present in our project. Jelle also was kind enough to design the maps that are used in this book. The research project also had a branch in Denmark; initially at the University of Southern Denmark in Esbjerg and later – as both researchers moved – at Roskilde University. Bo Poulsen – with whom I share an interest in the history of the Dutch herring fisheries – has during the past four years become a friend as well as a colleague. On various occasions we have spent our leisure time together in the Netherlands and Denmark and professionally we have taken up the writing of joint publications. Although Poul Holm’s work as Professor of Maritime and Regional History and later as Rector of Roskilde University consumed a lot of his time, he has always followed and

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Introduction  |  13 Acknowledgements 

stimulated my ongoing research. It was also good to note that the doors to the offices of Jan Luiten van Zanden and Jan Lucassen, who were both attached to the Close encounters project as advisors, were always open. Jan Luiten’s encouragements – which started when I was working on my Master’s thesis at Utrecht University – have been a great support. The International Institute of Social History provided an excellent location for doing research. Although to many in academia it may seem odd to demand that the research staff actually work at the office instead of at home, it created the feeling of belonging to a group. This was especially the case with my fellow PhD researchers Marjolein van Dekken, Danielle van den Heuvel, Bas van Leeuwen, Jelle van Lottum, Elise van Nederveen Meerkerk, Daan Marks and Anna Tijsseling. During coffee breaks, lunches and in each other’s offices, everyday life was discussed. The presence of these particular colleagues also facilitated discussion. I especially profited from the comments of Daan Marks, whom I confronted many times with ‘Can you spare a few minutes?’ Daan was kind enough to go through most of the writing that has eventually become the chapters in this book. Moreover, cycling would not have been the same without Aad Blok, Jacques van Gerwen, Marti Huetink and Rob Wadman. The support offered by my colleagues in the library, reprographics and IT services has also made my work much easier. Within the Netherlands I have benefited from the structures offered by the N.W. Posthumus Institute, the Dutch school for PhD researchers in the field of economic history. In addition, Clé Lesger was so kind as to share his insights on Chapters 6 and 7 and Oscar Gelderblom’s knowledge of early modern capital markets has been of great benefit when writing Chapters 4 and 5. Although not active in the field of academia, the knowledge of Ron Couwenhoven and Frans Rutten on the history of the sawmilling industry and sawmill practices cannot be forgotten. Finally, Anne Lee and Vicky Nash professionally corrected my English and patiently commented on my (too) numerous questions. Aad Blok co-ordinated the language editing. This book would not have been the same without the invaluable help of numerous foreign colleagues, some of whom I have still not been able to meet. With sources often unknown or difficult to get a hold of, they all responded very kindly to my (email) requests for information, (unpublished) publications or datasets. I sincerely hope the following list covers them all: Bob Allen, Bengt Åke Berg, Ida Bull, Bård Frydenlund, Erik Gøbel, John Herstad, Ragnhild Hutchison, Markku Kuisma, Mats Olsson, Michael Serruys, Leigh Shaw-Taylor, Knut Sprauten, Johan Söderberg, Sølvi Sogner and Ola Teige. I also profited from the insights Joel Mokyr shared with me during a master-class organised in 2006 by the N.W. Posthumus Institute. I would also like to thank the participants at the Dutch-Flemish conferences on the economic history of the Low Countries before 1850, the workshop The

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14  |  Acknowledgements The economic consequences of the Dutch

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dynamics of economic culture in the North Sea and Baltic region c.1200-1700, the seminar Economic and social history of the premodern world, 1500-1800 (at the Institute of Historical Research in London), the history seminar at the University of Oslo, the European Social Science History Conference and the International Economic History Congress for their helpful comments and suggestions. My friends Martijn Pardoel and Nienke Vet read and commented upon Chapters 6 and 7. My other good friends – Willem Gerritsen, Inge Balvers, Wout Groeneveld, Corine Groeneveld and Jurre Laven – also deserve some words of thanks. I often neglected social contacts, particularly when I was finishing the manuscript, but they have always remained very supportive. My parents – Martin van Bochove and Joke van der Groef – were responsible for leading me onto the path of history. They have taught me a wise lesson by pointing out that one should not pursue a career because of the head, but because of the heart. During my studies they have continuously challenged me to be ambitious and realise as much as I possibly could. I am very thankful for this. My brother Jeroen van Bochove never stopped making fun of my interest in the herring fisheries. Moreover, on numerous occasions he was so kind as to question whether we did not already know whatever it was that I was researching at the time, since it had already taken place so many years ago. I think I ‘got back at him’ by asking him – together with Wout Groeneveld – to organise the day of my dissertation defence. The last one to thank is Erica Balvers, with whom I have lived together during most of the time that it took to complete this book. She was patient when I wanted to finish work at home or had to go to yet another conference or workshop, but thankfully she also provided an environment where economic history was far away. Without her support it would have been much more difficult to write this book and it is therefore dedicated to her.

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Acknowledgements  Introduction  |  15

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1 | Introduction

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1.1 The context On 3 January 1630, Amsterdam merchant Hendrick ten Velde and skipper Wijbe Jelmersz appeared before notary Laurents Lamberti. They agreed that Jelmersz would sail his ship De witte Duijff to the Oslo fjord in order to buy timber and Ten Velde would pay him 1,050 guilders for freight in return. The timber had to be delivered to Amsterdam. Eight years later, on 23 February 1638, Lauris Blicx from Trondheim stated to another Amsterdam notary – Cornelis Touw – that the first hundred guilders that he would earn in the service of the West India Company, would go to Thomas Brant. Blicx would leave the Republic as a soldier on the vessel De Keijserin and owed money to Brant – innkeeper of the Graetbooch in the Haarlemmerdijk in Amsterdam – for board and some financial advances. On 19 June 1735 Amsterdam stockbroker Robert Hennebo reported to his client, Haarlem silk merchant Simon Bevel, that he had been able to purchase £500 of nominal stock of the Bank of England for him. The securities were to be delivered on 15 August 1735 at the price of 138%. Three seemingly unrelated events that took place during the long gone seventeenth and eighteenth centuries. On closer examination, however, two aspects stand out. Firstly, the fact is that these three cases bear close similarities to events taking place in the markets for goods, labour and capital during our own time. Nowadays, the term globalisation is frequently coined to denote events that are essentially the same as those in the three examples: the economic interplay between regions which are becoming increasingly integrated. It is

 Schreiner, Nederland og Norge, 120-121, 174.  Amsterdam municipal archive, Notarial archive (5075), inv. no. 1420, act 722. For a contemporary document about other Norwegians present in Amsterdam around this time, see Van Lottum and Sogner, ‘Magnus og Barbara’, and Van Lottum and Sogner, ‘Het verhaal’. See Van Gelder, Oost-Indisch avontuur, and Van Gelder, Naporra’s omweg, for details more specific to the present example.  Van Nierop, ‘Brieven’, 56.

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Introduction  |  17

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often believed that such interaction is now taking place for the first time, but historical studies have shown that this is not the case. For example, with respect to the north Atlantic region, Kevin O’Rourke and Jeffrey Williamson have argued that an earlier round of globalisation occurred during the nineteenth century. It will be argued in this book that during the seventeenth and eighteenth centuries similar processes could also be observed around the North Sea. Secondly, the fact that Amsterdam played a central role in all three cases catches the eye. From the late sixteenth century until the second half of the seventeenth century the Dutch Republic came to dominate economic development in northern Europe. In Dutch historiography this period came to be known as the Golden Age. Although its central commercial position then started to wane, Holland continued to occupy its central role in the labour and capital markets until the end of the eighteenth century. The three examples above are simply highlighting some of the features of the much larger processes that took place during the early modern period as a result of Dutch economic growth. With respect to the phenomenon that the growth of one dominant economy came to influence the development of other economies, one cannot but note the similar position of Britain during the long nineteenth century and the United States of America during the twentieth century. That the Dutch Republic assumed such a position a few centuries earlier is not surprising given its period of economic prosperity. Scholarly attention has primarily been directed towards explaining the character or origins of this growth rather than the impact that it had on nearby regions. This is curious to say the least because the growth of the Dutch economy offered possibilities for some and created obstacles for other nearby regions. With regards to the latter, in a sector such as the herring fisheries, the dominant position of Dutch fishermen impeded the rise of this sector in other coastal regions. This led to elaborate discussions on how this industry could be conquered from the Dutch. Similarly, Dutch economic prosper-

 O’Rourke and Williamson, Globalization and history.  See Van Lottum, Across the North Sea, for the labour market and Chapters 4 and 5 of the present book for the capital market.  To mention some examples: Israel, Dutch primacy (‘rich’ or bulk products central to growth of trade); Gelderblom, Zuid-Nederlandse kooplieden, and Gelderblom, Merchants in the Low Countries (merchants and their operating procedures); De Moor and Van Zanden, Vrouwen en de geboorte van het kapitalisme (early labour participation of women); Van Zanden, Rise and decline, Chapter 2 (environment); Van Bavel, A social and economic history (the institutional framework).  Elder, The royal fishery companies; Harris, ‘Patriotic commerce’; Harris, ‘Scotland’s herring fisheries’; Sgroi, ‘Piscatorial politics revisited’; Van Bochove, ‘De Hollandse haringvisserij’; Poulsen, Historical exploitation; Van Bochove et al., ‘Total production of salted herring’.

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18  |  The economic consequences of the Dutch

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ity invoked the implementation of a hostile mercantilist policy in England. These negative effects of Dutch growth were to some extent balanced by the fact that many thousands of foreigners were attracted by the opportunities of work and high wages in Holland. Around 1650 an estimated 139,000 people born in one of the other North Sea countries were present in the Dutch Republic. Their contribution to the Dutch economy should not be underestimated because Holland’s population at this time numbered only around 800,000 people. Large numbers of foreign workers could be found as sailors on Dutch ships and by performing such labour they made the commercial success of Holland possible. Moreover, cheap Dutch capital was increasingly used to finance foreign commercial undertakings and governmental policies. By the end of the eighteenth century well over 700 million guilders – or one and a half times the value of the gross domestic product – were invested broad; and this does not include the credit that was extended privately between merchants. Converted to the current size of the Dutch economy, this would suggest foreign investments to the value of slightly more than $ 800 billion.10 Obviously, not all regions outside the Dutch Republic were as likely to be affected by the Dutch economy. In order to be affected, actual contact with the Republic was crucial; and in order to be able to have this contact, regions had to be able to reach each other. The landscape, the available means of transportation and the resultant costs played a significant role in determining the impact radius of Dutch economic development. The availability of roads – either land routes or waterways – was essential for making that impact possible. High-quality road networks were not available during the early modern period. Transport over navigable water was easier and much cheaper than over land. Obviously, low-volume high-value goods could bear such transport costs better than high-volume low-value goods. But overall, landlocked locations would have had a limited action radius whereas locations with access to waterways could have extended their contacts over a much

 Ormrod, Rise of commercial empires.  Van Lottum, Across the North Sea, Appendix I. Note that overall migration was thus somewhat larger. For the population estimate, see the dataset constructed by Van Zanden, Reconstruction. 10 See Chapters 4 and 5 for the investment data. The GDP figures can be found in Centraal Bureau voor de Statistiek, Macro-economische saldi, and Smits, Horlings and Van Zanden, Dutch GNP, 219. GDP figures at market prices were used for the years 1807 and 2006. Given the fact that no earlier GDP figures were available, the foreign investment figure for the year 1800 had to be related to GDP in 1807. Growth in the intermittent years would not have been able to influence the results much.

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Introduction  |  19

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larger area.11 Given the fact that Holland is located on the north-western edge of the European continent on the coast of the North Sea, social, cultural and economic contacts with other relatively close North Sea coastal regions would have been more frequent than with land regions.12 In other words, the North Sea coastal regions (see Figure 1.1) were the most likely places to have experienced the impact of the flourishing Dutch economy. This does not mean, however, that contact between the Republic and other areas was restricted to the North Sea region alone. There was considerable land-borne contact with inland regions. In addition rivers such as the Rhine made it possible to extend water-borne contact inland. Infrastructural improvements – such as the development of the Dutch barge network and the English turnpike system – also made it possible to improve contact with regions further inland.13 Moreover – through the Norwegian Sea, the Sound and the English Channel – contact with areas outside the North Sea region also existed. Through these waterways the impact of Dutch economic growth was also felt in the Baltic and East Indies; and in addition, the Atlantic and southern Europe were also influenced by it. With these more distant regions, however, contact was perhaps weaker given the fact that they were located much further away from the Republic than the North Sea coastal regions. In addition, contact may have been more diffuse, making it more difficult to find a set of regions that interacted with the Republic economically. For these reasons, the focus of this book will be directed principally towards the North Sea region, because it is here that the interaction with the Dutch economy must certainly have taken place. This does not mean, however, that all of the countries bordering this sea are of concern here. Lex Heerma van Voss and Poul Holm used a distance of 50 kilometres inland from the coast to denote the sphere of influence.14 In practice this limits the region to be analysed to the respective coastal areas only. Attention will mostly be paid to urban centres because these fulfilled a central role in making the interaction between regions possible. Moreover, the data that will be used

11 See, for example, Kellenbenz, ‘Landverkehr, Fluss- und Seeschiffahrt’, and Horsten, Doorgaande wegen. A few nineteenth-century figures can be used to illustrate this. While in 1830 it cost more than $30 to ship a ton of cargo three hundred miles over land from Lyon to Paris or from Berlin to Bonn, it only cost $10 to ship a similar quantity of goods across the Atlantic. As the Atlantic crossing covered about 3,500 miles, transport over land was about 35 times as expensive as over water. In the course of the nineteenth century both freight rates decreased, to $5 and $3 in 1900, but transport over land was still 20 times as expensive as over water. See Frieden, Global capitalism, 5. 12 In a historical case-study of the Upper Rhine region, Scott, Regional identity, showed that similar outcomes could be attained with mountain ranges and a valley with a small river. 13 De Vries, Barges and capitalism; Bogart, ‘Turnpike trusts’; Bogart, ‘Transport investment’; Bogart, ‘Explaining the diffusion’. 14 Heerma van Voss and Holm, ‘Close encounters with the Dutch’, 149.

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20  |  The economic consequences of the Dutch

in the present analysis is more likely to be available for urban centres than for the countryside.15

Figure 1.1

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The North Sea region around 1650

Studying interaction within a geographical entity as the North Sea region is

15 The central role played by towns in regional economic development was earlier described by Walter Christaller (1933) and August Lösch (1940). Their publications were originally in German, but have also been translated into English. While in their publications towns were largely a centre on which their respective hinterlands focused with respect to production and trade, the work of James Bird and Allan Pred also allowed these towns to interact with each other. See Christaller, Central places; Lösch, Economics of location; Bird, Centrality and cities; Pred, Urban growth; Hohenberg and Hollen Lees, The making of urban Europe; Prak, Legio regio’s. Historical studies that make use of this type of model include Lesger, Hoorn als stedelijk knooppunt, and Lesger, Handel in Amsterdam.

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Introduction  |  21

not new. In 1949 French historian Fernand Braudel famously applied the concept of the inland sea to a historical case-study.16 In his La Méditerranée, he argued that the Mediterranean Sea facilitated the interchange between the regions located on its shores. Braudel believed that Mediterranean regions connected to each other by waterways had more interaction than regions that were connected through land routes only. Contact between these Mediterranean regions was organised through a network in which cities were the focal points. A city was not only connected to its surrounding countryside, but could also have contact with other towns on the national or even international level.17 Braudel’s thesis was so appealing, that it attracted much attention from later historians, who applied the concept to other seas as well. Since almost no sea has escaped scrutiny, the North Sea has also attracted the historian’s attention.18 About a decade ago – in the edited volume The North Sea and culture – it was argued that the North Sea also formed a Braudelian socio-economic unit.19 Noticeably, a systematic analysis of the economic interaction of the region was missing in La Méditerranée. In The North Sea and culture the ­economic impact has also not been studied in a systematic way. The contribution by Jan Lucassen, in which the migration patterns within the entire region were sketched, was the exception.20 Taking this and the above considerations into account, a more complete analysis of the regional economic impact of Dutch growth could be wished for. The present book hopes to start filling this lacuna. However, this book should not just be seen as describing one part of Dutch economic history, it should also be perceived as offering a historical parallel – albeit on a more modest geographical scale – to the growth of the British and American economies during the nineteenth and twentieth centuries and the impact that this had on global economic development. The North Sea region offers a good testing ground for studying these exact processes in an earlier historical setting. The central question that this book intends to answer is what the economic consequences of Dutch dominance were in the North Sea coastal regions. In other words, this book will focus on the economic aspects of interaction.

16 Here the 1995 English edition was used: Braudel, The Mediterranean. 17 Braudel, The Mediterranean, I, 323. 18 See Blockmans and Heerma van Voss, ‘Urban networks’, 10 note 1, and Van Lottum, Across the North Sea, Introduction notes 2-11, for numerous citations. To these can be added Gerner and Karlsson, Nordens Medelhav; Sulistiyono, The Java Sea network; and Floor, The Persian Gulf. 19 Roding and Heerma van Voss, The North Sea and culture. 20 Lucassen, ‘A crossroad for migrants’.

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22  |  The economic consequences of the Dutch

In order to allow for a systematic approach, this book will treat the markets for goods, labour and capital. The economic theory in this field – the factor price equalisation theorem, which will be discussed in more detail in section 1.2 – describes the processes that might be observed in the analysis. This book will document whether these processes did indeed take place during the early modern period. In the first half of this book the markets for goods, labour and capital will be studied separately. Chapters 2, 3 and 4 will not study each market as a whole, but will provide an example for each market. The relationships between Holland and the other North Sea regions are studied from a bilateral point of view. The variables that caused or prevented foreign regions from being influenced by Dutch economic growth will be identified. The second half of this book will study the region as a whole. This serves two purposes. Firstly, this way the interaction between the three markets as a whole and the role played in this by Holland can be studied in more detail. Secondly, it offers a convenient way for cross-checking whether the conclusions from the first half of the book were also applicable to the region as a whole and to assess whether the North Sea economy was integrated and worked efficiently, as the factor price equalisation theorem would suggest.

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1.2 The analytical framework In order to structure the analysis that will be carried out in this book, it is useful to have some theoretical instruments that can guide the study of the economic interaction between Holland and the other North Sea regions. Fortunately, such interaction between regions has received ample attention from economists. By using their insights, some ideas of what to look for can be formulated before commencing with the actual analysis.21 The basic international trade model – on the basis of which commercial relations between regions are interpreted – was developed by the Swedes Eli Heckscher and Bertil Ohlin.22 According to these two authors, countries tend to export those products that are made using the factor of production that is abundant locally. The goods that are imported, however, are made using a factor of production that is relatively scarce domestically. The premises for this model were that factor supplies were fixed and fully employed; and that while factors were domestically mobile, this was not the case internationally.

21 This discussion has primarily been based on the summaries provided by Brakman, Garretsen and Van Marrewijk, Geographical economics; Krugman and Obstfeld, International economics; and Pugel, International economics. 22 Ohlin, Interregional trade and international trade; Heckscher et al., Heckscher-Ohlin trade theory.

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Introduction  |  23

Furthermore, constant returns to scale were assumed. Heckscher and Ohlin did not fully pursue the implications of their model and it was left to Paul Samuelson to take the model one step further and formulate the factor price equalisation theorem. According to Samuelson, trade could act as a substitute for international flows of labour and capital. As a consequence free trade would not only reduce international differences in goods prices, but it would also eventually level wages and interest rates. As time progressed, economists found that the model did provide an approximation of international trade flows, but all kinds of frictions were identified as well. These frictions were the result of the assumptions used to formulate the model.23 It was found, for example, that the immobility of the production factors was an unrealistic assumption. In addition it was found that monopolistic competition, economies of scale and transport costs also had to be included in the model. Through these elements convergence could be a long, drawn out process or did not have to take place at all. The ‘school’ that has brought these points forward is now generally referred to as the New Economic Geography. Paul Krugman is one of the exponents of this ‘school’.24 Allowing the factors of production to be internationally mobile does not fundamentally change the workings of the model. It still comes down to the fact that goods, labour and capital are moved from locations in which they are cheap to locations in which they are expensive. In the process supplies in the sending and receiving regions change, followed by a reaction in prices. In sending regions prices will increase because the supply has decreased, whereas in receiving regions the prices will decrease because local supplies have increased. The process can thus be compared to communicating vessels in which liquid levels eventually become identical on both sides. Obviously, this levelling or converging of prices can be measured. The existence of economies of scale, however, could possibly give the core an advantage that might make the wage difference last longer or even increase. Economies of scale can occur at the level of a single firm (internal) or the industry as a whole (external). In the former average production costs become lower when the firm’s production size increases, while in the latter average costs decline through increased specialisation or because input markets improve. In one way, the international movement of the factors of production can also foster the existence of economies of scale in the core region. This is particularly the case when the group of migrants consists mainly of skilled workers. As a result, the supply of skilled labour in the core economy will increase, giving the core region an even greater advantage when 23 Pugel, International economics, 60 note 4, 68 note 2, 72 note 4. 24 The standard work is Fujita, Krugman and Venables, The spatial economy.

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24  |  The economic consequences of the Dutch

competing with the non-core regions. Instead of wage differences levelling out through migration, the migration of this specific group from non-core regions to the economic centre may give the economic centre a lasting production advantage.25 In addition to economies of scale it should be noted that not all economic processes in non-core regions necessarily had to be driven by international forces. Endogenous economic development could have had an effect on local factor price formation as well. The rise of a new industry, for example, could have exerted an upward pressure on wages through the increased demand for labour. Another example would be an epidemic that could have reduced the workforce and driven wages up. The behaviour of core and non-core factor prices vis-à-vis each other, may therefore not have been caused by the movement of goods or factors of production alone. It is not the purpose of this book to prove or disprove the factor price equalisation theorem or the adjustments that have later been made to it. The theorem is instead used as an instrument to analyse the effects that the development of the Dutch economy had on nearby North Sea regions. Obviously, this book will try to include the above notions on economic interaction as far as possible. Migration, capital flows and endogenous economic development can be included easily, however the inclusion of the other adjustments to the factor price equalisation theorem is more complex. The following section will therefore discuss how this book intends to deal with them.

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1.3 A note on transport costs and economies of scale Of transport costs and economies of scale, the former can be dealt with more easily.26 It has been pointed out by the New Economic Geography that decreasing transport costs could lead to economies of scale in manufacturing sectors because the price of goods that would have to be imported (e.g. inputs and foodstuffs for the workers) would become lower. This would make it attractive to locate manufacturing at a limited number of locations because in this way lower average production costs could be realised. Eventually, in the absence of transport costs, this effect would be undone and economic activities would be able to take place at any location.27 It is unlikely, however, that during the period under review here changes in transport costs could

25 Pugel, International economics, 345; Fratesi and Riggi, ‘The role of skill-selective flows’. 26 Note that monopolistic competition is not explicitly discussed in this book. The macro level analysis that this book pursues means that it will not be possible to determine how producers actually differentiated their products from those of other producers. 27 Fujita, Krugman and Venables, The spatial economy, Chapter 7.

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Introduction  |  25

have been responsible for the appearance or disappearance of economies of scale. It will be shown in Chapter 2 that real transport costs remained stable during the seventeenth and eighteenth centuries. This means that changes in relative wage levels – if observed at all – could not have been caused by decreasing transport costs. Economies of scale are more complex to deal with and a more elaborate discussion is therefore required. Economies of scale certainly existed within the Dutch Republic. Take, for example, the herring fisheries or the sawmilling industry. The ownership of multiple fishing vessels could lead to internal economies of scale while the presence of hundreds of sawmills in the Zaan region would probably have resulted in external economies of scale.28 The presence of economies of scale was not restricted to the Dutch Republic however. They could also be found in other parts of the North Sea region. The cod fisheries in western Norway and the coal industries of Scotland and northern England are good examples of this. This raises the question of how the existence of economies of scale in different countries should be balanced against each other. It is also difficult to establish the point at which an industry actually enjoyed internal or external economies of scale and how many people such an industry needed to employ in order to be able to influence the overall wage level of an economy. It is also unclear how long any such advantages should be retained vis-à-vis other regions. With respect to the foreign labourers that came to the Republic it can be shown, furthermore, that migration was far from dominated by skilled workers. On the contrary, workers that migrated to the Dutch Republic were predominantly unskilled. Norwegian migrants, for example, mainly originated from farms in the southern part of the country.29 It is therefore unlikely that they possessed the particular skills required for a skilled occupation in the Dutch Republic, where they found work in every sector but agriculture. Those workers that did possess such skills may even have been better off staying at home. After all, migration to the Dutch Republic involved risks, including the possibility that they would not be able to obtain a skilled job and would have to accept an unskilled position. Given the higher skill premiums in peripheral regions, skilled workers would not have gained much or could even have lost out in terms of wages.30 In addition, accepting an unskilled job would also have reduced the social status of the worker.

28 For the herring fisheries see Van Bochove, ‘De Hollandse haringvisserij’, and Van Bochove, ‘The “gulden mountain”’. For the sawmilling industry, see Chapters 6 and 7. 29 Van Lottum, Across the North Sea, Chapter 2. 30 The skill premium is a measure of the extent to which the wages of skilled and unskilled workers differ. It is usually calculated as follows: (skilled wage – unskilled wage) ÷ unskilled wage. See Appendix II for publications on which skill premiums can be based.

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26  |  The economic consequences of the Dutch

Figures on Amsterdam’s seventeenth-century occupational structure provide some information about the extent to which foreigners performed skilled labour. The compilers of the data, Dutch historians Ad Knotter and Jan Luiten van Zanden, have analysed the occupation stated by grooms in the city’s marriage banns. They differentiated between proletarian, craft and specialist occupations. Of all the registered foreign workers, 49% performed proletarian work, 33% were performing a craft and 18% held a specialist occupation. Although unskilled work was thus the single most important type of work, foreigners were also active in crafts and specialist occupations. The figures are biased, however, towards skilled work. Firstly, by the fact that many foreigners performed low-skilled non-sedentary labour and were therefore less likely to marry and thus did not appear in the marriage banns. Secondly, by the fact that workers with a craft or specialist occupation had a larger chance of marriage compared to (sedentary) unskilled workers. Thirdly, by the fact that the chance of upward social mobility meant that some of the workers that were placed in craft or specialist categories at marriage might actually have been proletarian upon arrival in the town. In addition it should be noted that workers in the textile industry from the southern Netherlands and France were responsible for almost 30% of all of the specialist work done by foreigners.31 Given the fact that the remaining 70% were spread out over the various other sectors and all groups of migrants, it is unlikely that during the centuries under review the more structural migration of labour from the other North Sea regions to the Dutch Republic was characterised by its skilled nature. One indicator of the relative supply of skilled labour – the skill premium – does not suggest that the supply of skilled workers increased more rapidly than the supply of unskilled workers in the Dutch Republic.32 With the possible exception of some specific sectors, migration did thus not further economies of scale. To sum up, economies of scale certainly existed during the seventeenth and eighteenth centuries, but they are difficult to operationalise in this kind of research. Discussing them more explicitly would require a fuller analysis, but this will be left for another study. The brief discussion that has been provided in this section suggests that leaving both economies of scale as well as transport costs out of the discussion will not distort the overall research conclusions.

31 The figures are based on Knotter and Van Zanden, ‘Immigratie en arbeidsmarkt’, 414. 32 See Appendix II for publications on which the Dutch skill premium can be based.

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Introduction  |  27

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1.4 Setup of the book As has already been mentioned above, this book will focus on the economic interaction between the Dutch Republic and the various North Sea regions. The analysis will focus on the markets for goods, labour and capital. Chapters 2, 3 and 4 of this book will therefore pay attention to the behaviour of prices in these three markets. Chapter 2 will be occupied with the market for goods. On the basis of a set of grain prices this chapter hopes to answer the question of to what extent the price levels around the North Sea converged to a common level as the result of international trade. These data will also allow us to gain an insight into the degree to which Holland assumed a central position in the international goods market and information network. Since grain prices for a relatively large number of towns will be used, this study will allow for a more general conclusion about price behaviour in this part of Europe. In Chapter 3 the labour market will be discussed. Wages will be studied in order to determine whether migration led to a narrowing of the wage gap that existed between the western Netherlands and the other regions around the North Sea. Most studies in the field of living standards are limited to wage levels in economically developed regions, and evidence for less-developed regions has often not been included. More data will allow for a more accurate assessment of the effects described by the factor price equalisation theorem. Following the literature, both nominal and real wages will be collected. The analysis will enable us to determine the extent to which migration led to wage convergence or whether there were perhaps obstacles that prevented such a process from occurring. Chapter 4 will turn to the capital market. Relatively speaking, much has already been published about Dutch investment in England, but England was a special case due to the fact that it had a fairly well-developed capital market. Limiting the analysis to just a developed capital market, therefore, might obscure the research conclusions. For this reason it is preferable to also include a country with a less-developed capital market. Given its important position as supplier of labour, it was decided to gather data for Denmark-Norway. The advantage of studying both England and Denmark-Norway is that in this way, almost the whole spectrum of capital market development can be covered. Chapter 4 will collect data for Denmark-Norway from published and archival sources. Dutch investments in this region will be charted and the reasons for, and difficulties associated with, these investments will be reviewed. Chapter 5 will subsequently broaden the scope of analysis by comparing the data for Denmark-Norway with similar information for England. The new estimates of Dutch investment in England are to a significant extent based on recently published estimates of Dutch holdings of English funds. Using these new

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28  |  The economic consequences of the Dutch

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estimates, a much broader perspective and better understanding of Dutch early modern foreign investments can be gained. What differences existed in Dutch investment patterns? How did the international distribution of Dutch capital come about? What were the driving forces? Subsequently, Chapters 6 and 7 will study the three markets as a whole. This will be done through case-studies that focus on production and international trade in the timber industry. Timber was a vital commodity within the economic development of the North Sea economies. It was crucial for the economic growth of not only Holland, but also of the rising English economy. Furthermore, the timber trade was very important to a timber exporting region such as Norway. Whereas timber could only be ‘harvested’ in selected regions, processing could take place everywhere. The studies undertaken in Chapters 6 and 7 will allow us to explain on what basis local production decisions were taken and assess the role played by the international markets in this process. A better understanding of the interplay between goods, labour and capital markets can thus be acquired.

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Introduction  |  29

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2   | The integration of goods markets in northern Europe

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2.1 Introduction The early modern period is well-known for the growth in international trade. All the major international destinations of northern Europe’s leading merchant communities – the Baltic, southern Europe and the Mediterranean, the Atlantic and Asia – witnessed an increase in trading activities. Within northern Europe a wide range of goods was traded. A large part of the traded goods were of a high-volume low-value nature, but large quantities were nevertheless traded between regions. The Baltic exported goods such as grain, timber, iron, hemp, flax, tar and pitch. Norway specialized in producing preserved fish (mainly cod) and also exported large amounts of timber. Denmark was famous for the large number of oxen it exported, but Danish grain also found its way abroad. Across the Channel, England and Scotland shipped significant amounts of grain and coal. The Dutch produced large amounts of salted herring for export. The trade in foodstuffs such as grains formed a sizeable and often crucial part of these trade flows. Most regions in northern Europe seem to have



Tracy, Rise of merchant empires; Tracy, Political economy of merchant empires; Israel, Dutch primacy; De Vries and Van der Woude, The first modern economy, 350-404; Engerman, ‘Mercantilism and overseas trade’; Ormrod, Rise of commercial empires. According to Allen, ‘Progress and poverty’, trade played an important role in creating economic growth during the early modern period.  Gijsbers, Kapitale ossen; Herstad, Kornmonopolet; Van Bochove, ‘De Hollandse haringvisserij’; note 1; Chapters 6 and 7.

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The integration of goods markets in northern Europe  |  31

participated in this trade as importers, exporters or re-exporters. Because different types of grain and grain products such as malt were involved, a region could theoretically fulfil all these roles at the same time. The Baltic grain trade is probably the best known example of the early modern trade in grains, but during the eighteenth century England became an important exporter as well. The grain trade with the Baltic had already reached a substantial size during the sixteenth century and from the mid-sixteenth century onwards 50,000 lasts or more were usually exported westwards each year. During the early eighteenth century exports slumped, but from around 1750 they increased once more to exceed 75,000 lasts per annum at the end of the century. English exports only became significant in the eighteenth century. During the period 1700-1765 they increased from around 15,000 to 60,000 lasts per year. During the second quarter of the eighteenth century, English exports were therefore much larger than those from the Baltic. In addition to these large trades, many smaller trades took place at regional, national and international levels. With an annual volume of just 7,000 lasts, grain shipments to ports in southern Norway during the 1670s fit into the small trade category. The amount steadily increased from the 1730s onwards, however, and reached the 25,000 last mark around 1800. Having trade contacts with other regions allowed for surplus production to be transferred from one region to the other. In this respect trade flows could have important effects on exporting and importing regions. Having access to foreign goods supplies facilitated the process of labour specialization. The resulting increase in labour productivity would, all things being equal, of course, have resulted in economic growth. The enlargement of potential supply also makes a population less vulnerable to subsistence crises and reduces the volatility of prices. Both have a positive effect on the standard of living. In addition, the commercial connections between regions may be treated as a prerequisite for higher levels of cultural exchange. Once economic exchange takes place on a more than incidental level, cultural ties between regions may also become stronger. But how should we measure the effects of trade flows like these? From the late 1950s onwards, a growing number of publications have been dedicated to studying the integration of Europe’s markets. In the existing literature the discussion mainly centres on the concepts of convergence of price levels and synchronisation of price movements. This chapter will therefore focus on these two concepts. Evidence will be presented on the variables that played a role in bringing about convergence or synchronisation of price movements.



See, for example, Van Tielhof, De Hollandse graanhandel; Van Tielhof, The ‘mother of all trades’; and Ormrod, Rise of commercial empires.  Herstad, Kornmonopolet, 49, 160, 376, 383.

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32  |  The economic consequences of the Dutch

This will allow for a more thorough analysis of these processes. Most studies have taken the grain market as the object for this analysis because the necessary data sources (i.e. prices) are best available for this particular product. The present chapter will do the same for similar reasons. It is probable, though, that the results for this particular product are also representative of trade in general. American geographer Pred stressed, for example, that once a flow of good information for one product has been established, there is a potential ‘information ability’ for other products as well. The question to be answered is whether goods markets in northern Europe were or became integrated in the course of the seventeenth and eighteenth centuries. Knowing more about this will provide valuable information about the functioning of and interaction between the economies bordering the North Sea. In order to be able to answer the question posed above, this chapter will firstly discuss the concepts of price convergence and synchronisation of price movements. Section 2.3 will subsequently document whether convergence can in fact be observed between 1600 and 1800. The historical data concerning the variables that constitute the price differential will be reviewed. Section 2.4 will then analyse the extent to which prices moved similarly in the various regions. Again, evidence regarding the relevant variables will be discussed. Finally, section 2.5 will summarize and conclude.

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2.2 Theory and historiography As stated above, the present section will provide a theoretical outline of the concepts of price convergence and synchronisation of price movements. Convergence of price levels will be discussed first. Figure 2.1 presents a schematic representation of the concept. The importer curve represents the demand function for imports. As such, it depends on domestic demand and supply. The curve has a downward slope because when prices rise demand for the imported good will tend to decrease, and when prices decrease demand will increase. The exporter curve represents the supply function and relates to surplus production in the exporting region. This curve has an upward slope because exporters will be willing to export more when prices increase and less when prices decrease. We are only interested in the left half of Figure 2.1 because the price in the exporting region (Pe) is lower there than the price in the importing region (Pi). The price gap that exists between the two locations (G) can consist of transport and transaction costs (T) and an unaccounted-for price differential (U). Persson defines the latter as indicat-



Pred, Urban growth, 2, 16, 227-236.

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The integration of goods markets in northern Europe  |  33

ing ‘any arbitrage risk premium for traders working in poorly informed and uncertain environments, any profit captured by merchants exploiting exclusive information and, finally, unidentified (marketing) costs’. Later he simply refers to it as representing ‘a risk premium and/or inefficient arbitrage’. Arbitrage – i.e. trade – between the two markets can only take place when G ≥ T + U. In situation Q2, therefore, the markets are in equilibrium. In this situation the following holds: Pe = P2, Pi = P2’ and Pi – Pe = T + U. From here, arbitrage can no longer take place because beyond this point, transport and transaction costs can no longer be compensated for. As long as Pe ≤ P2, Pi ≥ P2’ and Pi – Pe ≥ T + U trade can take place and merchants can increase the traded volume from quantity Q1 until the quantity Q2 is traded. During this process the price differential between the two regions is constantly being reduced because the unaccounted-for price differential disappears. In other words, prices are converging. It should be noted, though, that decreasing transportation and transaction costs can make prices converge even more because trade can now be continued beyond Q2. If transportation and transaction costs could be reduced to zero, this process could theoretically be continued until Pe = Pi when Q3 is being traded. Parallel decreases of T and U are also possible.

and the price gap

p2’

p

Figure 2.1 2.1 Supply, demand

Q1

Q2

Q3

importer

trade exporter

Source: Based on O’Rourke and Williamson, ‘When did globalisation begin?’, 25.

2.2

p, p*

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p2

T+U

 Persson, ‘Mind the gap!’, 125-126, 136, 140-141.

T+U T+U

T+U

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trade

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34  |  The economic consequences of the Dutch

So far, the model is easy to interpret because it has been assumed that the import demand and export supply functions remained identical throughout time. In reality, however, structural changes may shift them outwards or inwards. Such a structural shift may be the result of changes in population size or the amount of land that is under the plough. Let us first take a situation in which only the demand function shifts outwards (see Figure 2.2). As the price differential increases, trade will also increase and a new equilibrium situation will be established when Q4 is traded. Although the absolute price gap remains the same, it is important to realise that the gap has become relatively less important as prices have increased. It is for this reason that the size of the price gap (G) should always be related to the price level by expressing it as G ÷ Pi or Pe. Figure 2.2 also depicts a hypothetical situation in which the supply function shifts outwards as the result of an outward shift in the demand function. In the example, equilibrium is re-established when trade is increased from Q2 to Q5. At this point price levels and price differential have become identical to the previous equilibrium, which means that, in effect, the outcome on goods prices was nil. In other words, while some fundamental changes in the volumes traded have taken place, in the end no formal convergence of prices can be observed. Such an outcome could also occur with a parallel increase of productivity in agriculture and shipping. In addition it should be mentioned that prices in two regions can move independently from each other as long as the transportation and transaction costs associated with shipping this product between the two regions are too high to allow for arbitrage. In such a situation, convergence or divergence does not say anything about the markets becoming more or less integrated. Together, these are serious limitations of relying solely on price ratios as a measure of market integration. In the field of price convergence the recent work of O’Rourke and Williamson on globalisation is very influential. Their publications will therefore be briefly introduced here. O’Rourke and Williamson try to highlight the fact that decreasing transport and transaction costs brought together regions that could not previously trade (more) and illustrate the effects that this



That such fundamental shifts could occur on the supply side is shown by England’s enclosure movement and the rapid growth of exports during the eighteenth century. See Allen, Enclosure and the yeoman, and Ormrod, Rise of commercial empires, 207-244.  O’Rourke and Williamson, Globalization and history; O’Rourke and Williamson, ‘The Heckscher-Ohlin model’; O’Rourke and Williamson, ‘After Columbus’; O’Rourke and Williamson, ‘Did Vasco da Gama matter’. O’Rourke and Williamson, ‘When did globalisation begin?’, pays most attention to the issues discussed in this section. See Flynn and Giráldez, ‘A critique’, for points of criticism not primarily directed against the price convergence model, and O’Rourke and Williamson, ‘Once more’, for a reply.

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The integration of goods markets in northern Europe  |  35

p2

p2’

p

had on the prices of goods and the factors of production. They see globalisation and commodity market integration as similar processes and equate mar2.1 ket integration with price convergence. In their view markets are perfectly integrated only when there is no difference in the price of a certain product on two markets. Obviously, this can only be achieved in the absence of transport costs and trade barriers. It comes as no surprise, therefore, that decreasing transport costs and removing trade barriers played a crucial role in their publications. If there was no price T+Uconvergence – as they claim was the case during the early modern period – markets were not integrated. Only when transportation became cheaper during the nineteenth century – as a result of the opening of the Suez Canal and the use of steam engines in ships and trains – did markets become integrated. O’Rourke and Williamson relied on relaQ Q Q trade tively simple techniques when testing for price convergence. They calculated importer and exporting exporter the price ratio of goods in importing regions and looked at the development of real freight costs. For what will follow in section 2.3, it is furthermore important to note that the authors used data on the per-year level. 1

2

3

2.2 Figure 2.2

p, p*

Shifting demand and supply functions

T+U T+U

T+U

Q4

importer

importer*

exporter

Q5

trade exporter*

Source: Based on O’Rourke and Williamson, ‘When did globalisation begin?’, 25, and O’Rourke and Williamson, ‘After Columbus’, 430.

2.3  In the eyes of O’Rourke and Williamson the ultimate form of convergence is when trade makes an impact on factor inputs. Economic history shows that in at least one pre-industrial case – Holland during the late middle ages – trade made a fundamental reorganisation of the economy possible. Access to Baltic grains allowed the Dutch to stop the growing of bread grains and specialize in cattle farming, growing summer grains and proto-industrial activities. The growth of Holland’s towns was partially made possible by this. However, it happened prior to the period under consideration here and thus remains undiscussed. See Van Zanden, Rise and decline, (T+U)* Chapter 2.

p, p*

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Q2

T+U T+U

4 Q2 van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration aroundQthe North-Sea, 1500-1800, Amsterdam trade University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57. importer importer* exporter

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36  |  The economic consequences of the Dutch

Now that price convergence has been considered, this section will continue by discussing the synchronisation of price movements. In order to better understand the concept we have to take a closer look at price formation in the importing region. Until now it has been assumed that only structural price changes could occur. Structural changes such as population growth may be steady but are also necessarily slow. Pressure on prices through increased demand and the corresponding reaction in exporting regions will therefore only evolve gradually. It was shown above that such a process might entail structurally increased trading, the return to equilibrium prices and the absence of convergence. However, similar processes can also take place on a more abrupt basis. The following explains how this works. Take, for example, a hailstorm that ruins (part of) a local grain harvest. Since the demand for grain products was large and inelastic, the price elasticity was higher than for most other goods. Prices would therefore have risen sharply, resulting in a larger price gap with other regions (G = (T + U) + (T + U)*; see Figure 2.3). Where such price gaps became large enough to cover transportation and transaction costs, arbitrage could take place and trade would temporarily have increased. This short-term increase of exports could be made possible by the fact that the rising prices were an incentive for exporters to sell stockpiled goods and/or reduce current consumption of the exported product and instead consume another product as a substitute. The additional grain supplies would have decreased prices in the importing region, whereas the additional foreign demand would have driven prices up in the exporting region. Trade would be increased until a new equilibrium – in which the price difference again equalled freight and transaction costs – was reached at volume Q4.10 As, in the following year the harvest in the importing region would most likely have returned to its normal size again, the original equilibrium would gradually have been re-established. Modelling along these lines is promising because it can show how societies actually reacted when they were confronted with a situation in which G > T + U and arbitrage had become possible. Statistics allow us to detect situations in which G > (T + U) + (T + U)* and to determine how integrated markets were. Accepting such a framework implies that, as long as the price differential is smaller than the combined costs of transportation and transaction, the prices in two regions can move independently from each other and develop according to local variations. Staying within this bandwidth thus means that regions could be fully integrated while prices were actually di-

10 Note that given the elasticity of prices, the traded volume of grain would actually have lain in between quantities Q2 and Q4. Imports would have reduced prices elastically in the importing region and therefore imports smaller than Q4 were required to establish a new equilibrium.

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Q4

Q2

Q5

trade The integration of goods markets in northern Europe  |  37 importer

importer*

exporter

exporter*

verging. What it is really about is the point at which arbitrage becomes feasible and the speed with which the normal situation is then re-established.

Figure 2.3 2.3

p, p*

Price formation during temporary shocks

(T+U)* T+U T+U

Q2

Copyright © 2008. Amsterdam University Press. All rights reserved.

importer

trade

Q4

importer*

exporter

The focus on price synchronisation is not new. Economic historians, economists and econometrists have long used and improved techniques to detect this type of market integration. A historiographical discussion is thus justi2.4 11 fied. As we will see the story is one of improving techniques and the use of more high-frequency data. In 1902, for example, Belgian historian Van Houtte visually observed the parallel movement of several different four50% teenth-century Flemish price series that he had collected. He felt that this 40% indicated some form of market integration but could not test this because the necessary statistical techniques had not yet become available. The first 30% to use statistics to study the integration of Europe’s early modern (grain) 20% markets was German historian Achilles. His 1959 study calculated correlation 10%coefficients on pairs of towns using the original annual quotations. Achilles’ test results indicated that cities with access to the relatively cheap 0% transport by water were better1730 integrated than 1750 cities that were linked through 1700 1710 1720 1740 1760 1770 1780 land routes only. He further found that the domestic markets in the northern towns the sixteenth 11 towns century and Netherlands were4 towns already well7 towns integrated 10 during that links with the Baltic were stronger than those with regions elsewhere in Western Europe. Allen and Unger – who used similar techniques – agreed 2.5 11 Obviously, not all studies in the field of market integration can be discussed explicitly here. 50% Publications that should at least be referred to are Froot, Kim and Rogoff, ‘The law of one price’, and Shiue and Keller, ‘Markets in China and Europe’. 40%

30% 20% 10%

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38  |  The economic consequences of the Dutch

with these findings, but added that connections with towns along the Rhine became less important the further one went upstream from the North Sea. They also believed that high levels of market integration did not occur until the second half of the eighteenth century. They argued, moreover, that in the future new datasets and more advanced techniques would be needed in order to obtain better test results.12 Since most historians had not yet mastered the knowledge to devise these advanced models, it was economists and econometrists that made the most progress in the field of market integration from the 1960s onwards. Initially, however, the models did not differ much. The seminal study by Granger and Elliott of England’s eighteenth-century wheat markets, for example, used a similar approach to that used by Achilles. The authors – who were probably unaware of Achilles’ article – concluded that these markets were ‘fairly well-developed’. Ravallion and Weir noted that high correlation coefficients could be spurious because they might be caused by shared circumstances. Therefore they both tried to improve the statistical apparatus. In order to measure price synchronisation, Weir focused on the volatility of prices and developed a summary measure that used the variance of detrended price series. Using data on the one-price-per-year level, Weir showed that during the seventeenth and eighteenth centuries there was a slow process of integration between France’s wheat markets. Ravallion’s error correction model also distinguished between the long and short-term effects of price movements, but in addition took the price differential between two towns into account. The model assumes that there is one central market and multiple peripheral markets. The price change in a peripheral market is the result of the price difference with the core market during the previous period and the price change in the core market. Although Ravallion studied twentieth-century rice prices, the methodology can of course also be applied to Europe’s early modern grain markets.13 Persson and Baten and Wallusch followed Ravallion and used co-integration techniques to establish whether price differentials were stable in the long run and, if so, how fast equilibrium was re-established after a shock had disrupted that equilibrium. In this model a market structure assumption is not necessary because towns are free to adjust their prices. The statistical testing, however, requires high-frequency data that are not always available. Persson, for example, used monthly grain price quotations and observed the

12 Van Houtte, Documents, 30; Achilles, ‘Getreidepreise’; Unger, ‘Baltic and Low Countries grain markets’, 9; Allen and Unger, ‘Depth and breadth’, 15. 13 Granger and Elliott, ‘A fresh look’; Weir, ‘Markets and mortality’; Ravallion, ‘Testing market integration’; Ravallion, Markets and famines. Gibson and Smout, ‘Regional prices and market regions’, and Chevet, ‘Corn markets in France’, followed Weir’s approach.

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The integration of goods markets in northern Europe  |  39

emergence of an integrated European market around the mid-eighteenth century. Domestic markets were usually better integrated than international markets, but the adjustment to shocks still took quite some time. Using annual prices in a fairly similar model, Baten and Wallusch found that Gdansk was integrated with most other markets. However, the overall integration of German and Polish markets as well as Poland’s domestic integration decreased during the eighteenth century.14 Jacks used annual price data, Weir’s summary measure and a model based on Ravallion to demonstrate that the integration of North Sea and Baltic markets increased in two phases. Prior to 1650, population growth was responsible for higher levels of integration, whereas after 1650 most weight should be assigned to a decrease in transaction costs. The latter was attributed to the increased mobility of capital, the decrease in information costs and the possibilities available for merchants to spread risks.15

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2.3 Convergence and price gap components Before turning to the actual analysis, the data that will be used in this chapter need to be discussed. Annual price quotations for wheat were collected from published sources only.16 These prices were either averages for calendar or harvest years, or were determined each year at a specific moment. This means that we should be cautious with comparing level values, but since one procedure was used throughout each individual series, changes in absolute values can be followed through time. Since prices were generally available in their respective local currencies and weight measures, all prices have been converted to grams of silver per litre in order to make them comparable. An attempt has been made to compile a dataset that is as geographically and chronologically representative as possible. The dataset used here has been able to include data for peripheral regions including Scotland, Norway, Sweden and Denmark, so the results apply to a larger region than is usual in market integration studies. How should these data series be related to each other? The products frequently discussed in price convergence studies such as the work of O’Rourke and Williamson, are quite specific in the sense that they were produced in the Americas (e.g. tobacco) or Asia (e.g. spices) but not in Europe. This dis-

14 Persson, Grain markets in Europe; Baten and Wallusch, ‘Market integration’. Ejrnæs and Persson, ‘Threshold error correction’, and Persson, ‘Mind the gap!’, even used fortnightly and weekly data respectively. 15 Jacks, ‘Market integration’. 16 See Appendix I for references and procedures used for converting the data.

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40  |  The economic consequences of the Dutch

tinction is much less clear with regard to grain. Most regions did have local production, but often the size of the local harvest was not sufficient to meet demand and additional imports were therefore necessary. These additional imports, however, came from various locations. Rotterdam, for example, imported grains from the Arnhem region but a lot of grain was also imported from England.17 Norway mainly imported from Denmark, but in some periods substantial quantities were also imported from other regions.18 Different types of grain may also have been involved and regions could fulfil different functions as importer, exporter and re-exporter at the same time. These diffuse trade patterns make it difficult to determine who were importers and who were exporters and hence which prices should be compared. Therefore it is preferable to look at the region as whole. A so-called coefficient of variation (CV) is used to measure the dispersion of prices in north-western Europe. The coefficient relates the standard deviation of prices in a number of locations during a certain year to the average price. Relating the standard deviation to the average is necessary because in absolute terms the value will be higher in a sample of high values than in a sample of low values. By determining the ratio between standard deviation and average, the outcomes can be compared through time. In an ideal situation the CV can be based on a geographically representative sample of grain prices. In reality, however, prices are not always that widely available. Generally speaking, more data are available for the eighteenth century than for the seventeenth century. In order to cope with this data restriction, Figure 2.4 shows for the eighteenth century CVs for four sets of towns. The four-town sample is the core and is made up of Cologne, Bruges, London and Cambridge. Next, Amsterdam, Arnhem and Edinburgh are added. Because the north-eastern part of the region is thus still under-represented, the ten-town sample makes up for this by including Bergen, Stockholm and Gdansk and the eleven-town sample also includes Copenhagen. Although the four-town sample is more volatile, the overall changes correspond well with the development of the larger samples. The smaller sample will have to be used to gain an insight into the development during the seventeenth century. Figure 2.5 presents the results. Again, the two CV series develop more or less identically through time. The 1640s and 1650s seem to have been a period of increased dispersion, but between 1660 and 1690 there was again some convergence. From 1690 onwards, CV values seem to have moved between 10% and 20%, but around 1760, the price dispersion once again increased somewhat. CV values were again similar to what they had been 180 17 Brusse, Overleven door ondernemen, 272-273; Ormrod, Rise of commercial empires, 221-222. 18 Herstad, Kornmonopolet, Appendices.

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p, p*p, p*

The integration of goods markets in northern Europe  |  41 (T+U)* T+U

(T+U)* T+U

years earlier. From this evidence it mustT+Uthus be concluded that during the T+U was no structural convergence to a set reperiod under review here, there gional price. How can this be explained? The price gap relative to the selling or purchasing price (G ÷ Pi or Pe) plays a central role in making convergence Q Q trade possible. As yet, however, the components that made up the price gap have Q importer for Qearly importer* exporter not been discussed explicitly modern northern Europe. As trade a result exporter some important factsimporter have remainedimporter* hidden from sight. The following part of this section will discuss freight rates, transaction costs and the unaccounted-for price differential. The discussion will start with transport costs. 4

2

4

2

2.4Figure 2.4 2.4 CVs for four

sets of towns, 1700-1780

50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 1700 0%

1710

1700

1720

1710 1720 4 towns

Source: Based on Appendix 4 townsI.

2.5 Figure 2.5 CVs 2.5 for two Copyright © 2008. Amsterdam University Press. All rights reserved.

50%

1730

1740

1750

1730 7 towns

1740

7 towns

1760

1770

1780

1750 10 towns

1760 1770 11 towns

1780

10 towns

11 towns

sets of towns, 1600-1780

50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 1600 0% 1600

1620

1640

1660

1680

1620

1640

1660 1680 4 towns 4 towns

1700

1720

1740

1760

1780

1700 1720 7 towns

1740

1760

1780

7 towns

2.6 Source: Based on Appendix I. 2.6 30% 30% 25% 25% 20% 20% 15% 15%

10% consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University van, Bochove, Christiaan. economic Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. 10% 5% 04:08:57. Created from wisc on 2024-03-01 5%

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42  |  The economic consequences of the Dutch

Freight rates were determined by the number of days at sea, the number of days in port and the respective costs per day. Daily costs were largely dependent on labour, capital and insurance costs. Size and cost of the ship, manning characteristics, wages, warfare and presence of armaments, load factor and the extent to which a product could be compressed during transport (e.g. cotton) all played a role in the height of freight costs. Based on a large number of assumptions Douglass North concluded that during the period 16001860 ‘the decline of piracy and privateering and the development of markets and international trade shared honors as primary factors in the growth of shipping efficiency’. Harley contested North’s findings and showed that new industrial technology was responsible for the nineteenth-century decline of freight rates. His findings have recently been elaborated upon by Mohammed and Williamson for the 1869-1950 period.19 At the time that North and Harley wrote their articles, little data on intra-European freight rates were available. Until quite recently useful transportation cost data were still not available for northern Europe’s main trading routes.20 Recently, however, data have been published on the Baltic grain trade and for the present chapter new data have been uncovered from the archives. What do these data tell us about changes in early modern shipping productivity? In her study of the Dutch grain trade with the Baltic, Van Tielhof has collected important evidence on freight rates on this crucial route covering the period from the early sixteenth century to the mid-eighteenth century. Using these data she has been able to document that in the short run freight rates increased as the shipping season neared its end (due to rough weather), when one had to overwinter in the Baltic, when a skipper was willing to leave immediately or when a skipper was believed to have superior skills. Warfare and privateering also raised freight costs as it increased risks, ships had to be armed and because many skippers chose to wait for a convoy to set sail. A large number of skippers competing for orders lowered rates at the beginning of the season. Structurally, however, transport costs only seem to have declined during the sixteenth century. A round trip from Gdansk to Holland would take 1½ to 2 months in 1530, for example, but a similar trip during the 1580s only required a good month. Although nominal freight rates (expressed in guilders) increased, real freight rates (T expressed as share in Pi) decreased considerably.21 For the seventeenth and eighteenth centuries, 19 North, ‘Ocean freight rates’; North, ‘The role of transportation’; North, ‘Sources of productivity change’ (quote page 967); Harley, ‘Ocean freight rates and productivity’; Mohammed and Williamson, ‘Freight rates’. 20 See Menard, ‘Transport costs’, for an overview of early modern freight rates. 21 As was noted above with respect to the price gap, it is important to correct the figures to take into account the price of the transported product as otherwise inflation may suggest that real freight costs increased.

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4 towns

7 towns

10 towns

11 towns

The integration of goods markets in northern Europe  |  43 2.5

however, no such decrease can be documented. Figure 2.6 suggests that real 50% transport costs may actually have increased somewhat.22 This is an interesting 40%conclusion since Lucassen and Unger suggest that Dutch ton-per-man ratios may have increased somewhat in the course of the seventeenth and 30% eighteenth centuries. It would seem that there were some other developments 20% – e.g. larger capital investments or changes in the price of the product that was transported – that made this rising labour productivity a zero-sum 10% game in the end. More research would be needed, however, in order to fully 0% uncover the interplay between these variables.23 1600

1620

1640

1660

1680 4 towns

1700

1720

1740

1760

1780

7 towns

Figure 2.6

Real transport costs of shipping rye from Gdansk to Amsterdam, 1590-1760 (rates as a percentage of the price of rye in Amsterdam and Arnhem)

2.6

30% 25% 20% 15% 10% 5% 0% 1590

1610

1630

1650

1670

Ams terdam

1690

1710

1730

1750

Arnhem

Source: Based on Appendix I, and Van Tielhof, The ‘mother of all trades’, 198, 203, 340-346. Note: Since rye prices in Amsterdam and Arnhem moved in tandem, both series have been used

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because Amsterdam rye prices were not available for the eighteenth century. For some years 2.7 when rye prices for Amsterdam were unavailable, interpolations were made.

35

In30order to be able to place these figures for Holland’s Baltic grain trade in a 25 wider perspective, the present study has extracted information from freight 20 contracts which were registered with Amsterdam notaries. Attention was only 15 to shipping between the Netherlands and Norway. Norwegian historian paid Schreiner has previously used this source, but he has only collected data for 10 the 5 period 1625-1649. In order to provide a longer time series, the card index of0Amsterdam’s notarial archive has been consulted for the pre-1625 and post1600

1610

1620

1630

1640

22 Van Tielhof, The ‘mother of all trades’, 340-346. Trondheim region 197-215,Oslo fjord 23 Lucassen and Unger, ‘Labour productivity’, 130, 133.

1650

1660

1670

Gdansk

2.8

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10%

1600

1620

1640

1660

1680 4 towns

1700

1720

1740

1760

1780

7 towns

44  |  The economic consequences of the Dutch

2.6

30% periods. The search was restricted to some of the more important trad1649 25% locations.24 Only those contracts for which transport costs for the round ing trip 20% Amsterdam-Norway-Amsterdam were given in lasts or could be converted to a freight price per last were included.25 It was deemed necessary to differ15% entiate between Norwegian destinations because the sailing distance between 10% locations differed. Determining one average freight rate for Norway would 5% comparing apples and oranges. As most of the contracts mentioned lomean cations in either the Trondheim region (142) or around the Oslo fjord (121), av0% 1590 1610 1650 1690 were 1710 1730 1750 meant erage annual freight1630 rates for these 1670 two regions determined. This that 41 and 31 rates remained for the respective regions. Ams terdam

Arnhem

Figure 2.7

Nominal freight rates for shipping on three northern European trade routes, 1600-1670 (in Dutch guilders per last)

2.7

35 30 25 20 15 10 5 0 1600

1610

1620

1630

Trondheim region

1640

1650

Oslo fjord

1660

1670

Gdansk

Source: Schreiner, Nederland og Norge, 112-161; Van Tielhof, The ‘mother of all trades’, 340-346;

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Amsterdam municipal archive, Card index of the notarial archive.

2.8The

data are presented in Figure 2.7 and a few aspects clearly stand out. Firstly, shipping goods to Amsterdam from Trondheim was more expensive

12% 24 Schreiner, Nederland og Norge, 112-161; Amsterdam municipal archive, Card index of the 10% notarial archive. Locations under the keyword Norway (Noorwegen) for which the card 8% index was studied: Bergen, Drammen, Flekkero, Fredrikstad, Kopervik, Kristiansand, 6% Kristiansund, Langesund, Larvik, Maerdo, Noorwegen (i.e. unspecified destinations in Norway), Nordmore, Oslo, Oslofjord, Osterrissor, Romsdal, Stavanger, Svinesund, Tonsberg, 4% Trondheim, Trondheim Lede. 2% When a total for a whole ship was given, contracts usually also specified the size of the ship 25 0% in lasts. This way the average price per last was determined. Sometimes rates were given per waag (fish) or great hundred (deals), but in order to facilitate a comparison with Van 1580 1600 1620 1640 1660 1680 1700 1720 1740 1760 1780 1800 Tielhof’s data, these have not been included here. measuring, brokerage, impost, galjootsgeld measuring, brokerage, impost, galjootsgeld, customs duties

2.9 van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University 45% Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 40% 04:08:57.

30 25 20 15

The integration of goods markets in northern Europe  |  45

10 5 than from the Oslo fjord. This was due to the fact that the route to Trondheim 0 about 50% longer. When this was taken into account, freight rates were was 1600 1610 1620 1630 1640 1650 1660 1670 similar on both routes. Secondly, the three series show no sign of decreasing trends. This suggests that the development freight rates Trondheim region Oslo of fjord Gdanskin the Baltic grain trade – for which data were available for a longer period – was representative of trade for the whole of northern Europe.26

Figure 2.8 2.8

Real transaction costs of wheat in Amsterdam, 1580-1800 (rates as a percentage of the price of wheat) 12% 10% 8% 6% 4% 2% 0% 1580

1600

1620

1640

1660

1680

1700

1720

1740

1760

1780

1800

measuring, brokerage, impost, galjootsgeld measuring, brokerage, impost, galjootsgeld, customs duties Source: Based on Appendix I; Israel, Dutch primacy, 282; and Van Tielhof, The ’mother of all

Copyright © 2008. Amsterdam University Press. All rights reserved.

trades’, 101-102, 155, 282. 2.9 Note: Israel actually gave the rates of convooien for rye for the years 1609, 1621, 1648 and 1651, but the fact they were similar to the values Van Tielhof gave for 1603 and 1651 suggests that nomi45% nal tariffs remained stable during the period in between. Because wheat values for the years 1603 40% and 1651 were the same, this has also been assumed to apply for wheat. One component of the 35% galjootsgeld was levied on the tonnage of a ship. It has been assumed that the ship was fully load30% ed with grain so that this levy could be added to the rate that was charged per unit of imported 25% grain. For some years for which wheat prices were not available, interpolations were made. 20%

15% 10% 5% 26 It is, of course, difficult to compare level values because skippers covered different dis0% tances because different For the period 1594-1643 Israel, Dutch 1700 and 1710 1720 goods 1730were involved. 1740 1750 1760 1770 1780 primacy, 87-90, 135, 137, documents fairly similar changes in nominal freight charges for shipping Portuguese and French salt to Holland and the Baltic and wine from Bordeaux to Amsterdam. A lack of useful price data for a product such as timber – a product that was frequently mentioned in the freight contracts – also makes it difficult to calculate real freight rates. For reasons of clarity, Figure 2.7 did not include values for the following years: 1695 (14.9 guilders) and 1772 (11.2 guilders) for the Oslo fjord and 1758 (21.8 guilders) for the Trondheim region. Considering the small number of observations after 1670, we should be cautious about drawing firm conclusions about the long-term pattern. The Oslo fjord values might suggest that there was no decrease, but more data would certainly be 3.2 required to substantiate this tentative conclusion. 1.20 1.00 0.80

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0.40

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46  |  The economic consequences of the Dutch

Now that the information on freight rates has been reviewed, it is time to discuss the other components making up the price differential. Transaction costs relate to a wide range of costs associated with shipping goods between ports that are not included in the transport costs. Think of such things as taxation, storage and measuring costs. With respect to the grain trade, Van Tielhof has collected quantitative evidence that has enabled her to determine how these costs developed over time.27 She provides the rates of customs duties (convooien) (which in the Netherlands were among the lowest in Europe), of a provincial tax on all incoming grains (impost op de inkomende granen), and of a payment due to the Board of Baltic Trade and Shipping (galjootsgeld). In addition, information was also provided by her on brokerage tariffs and the rates charged for measuring, setting and laying the grain when sold in Amsterdam. Costs were also made for storing and turning the grain, but the evidence for these costs is fragmentary.28 In Figure 2.8 these data have been used to construct a time series in which the tariffs are related to the price level of wheat. Although there were some periods during which real transaction costs increased, they also decreased again, and from the late 1730s onwards a period of structural decrease set in. At the end of the eighteenth century, real transaction costs had once again reached levels common around 1600. Besides transport and transaction costs, there was also an unaccounted-for amount that made up part of the price differential. Given the scanty level of detail in the available data, it is difficult to make accurate inferences about this additional amount. Rough estimates of profit margins may nevertheless shed some light on it. If profits originally had been excessively high – e.g. because of monopolistic practices – prices could converge when trade became more open and excessive profits disappeared. However, in Amsterdam, the market structure in most trades – i.e. the number of merchants active in the trade of one product and the extent to which an individual merchant was able to set prices – would have prevented individual merchants from cornering the market.29 The great number of merchants active in the grain and timber trades, for example, meant that there must have been competition between them.30 The chance of excessive profit margins persisting over time

27 Van Tielhof, The ‘mother of all trades’, 97-112, 143-181, 255-290. 28 As one may have noticed, the transaction costs discussed here relate to tariffs imposed by the government and guilds whereas Jacks was interested in the more direct costs of doing business. Chapters 4 and 5 will address Jacks’ point in more detail by showing that it became easier – and thus probably also cheaper – to conduct business with Dano-Norwegian merchants. 29 Veluwenkamp, Ondernemersgedrag, 5-30. 30 Van Tielhof, The ‘mother of all trades’, 122-123, mentions, for example, that 62 merchants were active in the grain trade around 1612. And in 1706 there were 137 of them. In the freight contracts presented by Schreiner, Nederland og Norge, 112-161, on shipping to Norway, a large number of different names also appear.

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The integration of goods markets in northern Europe  |  47

would consequently have been modest. Van Tielhof estimated the rate of return in the grain trade during the first decades of the seventeenth century at about 10%. This may just have been the minimum rate of return at which merchants were willing to invest their money in such commercial undertakings.31 Convergence as the result of sharply decreasing profit margins would thus have been an unlikely scenario. To sum up, this section found that grain prices did not converge in northern Europe between 1600 and 1800. It has been shown that this was the case because real transport and transaction costs, as well as the unaccounted-for price differential, did not structurally decrease during the period under review. Globally, goods prices converged on a large scale during the nineteenth century due to the introduction of steamships, the opening of the Suez Canal and the coming of the railways.32 The results presented in this section corroborate these findings. We have to realise that these were important technological and infrastructural breakthroughs. The fact that price differentials did not decrease during the early modern period does not mean that there were not important ties between regions. It merely shows that during the seventeenth and eighteenth centuries shipping had reached a productivity ceiling and that freight rates could not be reduced further for the time being. Of course, this did not prevent merchants from making a profit by exploiting situations in which the price differential allowed the shipping of goods between two towns. And, as will be shown in the following section, in this respect some actual improvements were made during the seventeenth and eighteenth centuries.

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2.4 Synchronisation of price movements Now that it has been shown that in northern Europe price gaps did not decline during the seventeenth and eighteenth centuries, an assessment can be made to determine whether price movements were synchronised. With respect to econometric techniques and data requirements this section aims to use a model that takes into account the advances that have been made in the field of statistical analysis while, at the same time, it will keep the data base as broad as possible. An error-correction approach has therefore been chosen as it is least demanding of the data and because it corresponds reasonably well with the assumption of the presence of a dominant price maker

31 Van Tielhof, The ‘mother of all trades’, 194-196. 32 O’Rourke and Williamson, ‘When did globalisation begin?’, 35-39.

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48  |  The economic consequences of the Dutch

(i.e. Amsterdam).33 Since, as the overview of the historiography has shown, this type of model does not require high-frequency data, it can easily be applied to the more widely available annual prices. This will enable the present analysis to include data from regions that are usually not included in market integration studies. Following Ó Gráda and Chevet, the model will be formulated in general terms.34 The model to be estimated is represented as follows:

lated in general terms. The model to be estimated is represented as follows:

$ ln P  A  B –$ ln P G – (ln Pp ln Pc) p ,t

t

c ,t

t 1

 e p ,t

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All prices have been converted to natural logarithmic (ln) values, a standard procedure in econometric analysis. The dependent variable equals the price change in the peripheral market, a equals a constant, the first regressor is similar to the dependent variable except for the fact that the price change now refers to the core market, the second regressor refers to the price differential between the peripheral and core market in the preceding period and e represents the error term. When two markets are integrated in the long run, one would expect prices to move identically in both markets. In such a situation‚ β would approach 1. When markets are temporarily out of equilibrium, the second regressor indicates how fast (γ; ranging between 0 and -1) an equilibrium situation will be re-established.35 High γ values are thus what we are looking for here.3635 Tests were, in principle, performed on the hundred-year periods 16001699 and 1700-1799. Where the data did not allow for this periodisation, later starting years or earlier ending years were chosen.3637 Table 2.1 shows how the test outcomes should be interpreted. The comparison of Arnhem’s and Tuscany’s integration with the Amsterdam wheat market shows much higher outcomes (β and γ) for Arnhem than for Tuscany. Moreover, the estimated model also better describes price formation in Arnhem than it does in

33 See, for example, Smith, ‘Amsterdam as an information exchange’; Lesger, Handel in Amsterdam, 209-249; and Van Tielhof, The ‘mother of all trades’, 143-181, on the centrality of Amsterdam in the information network. 34 Ó Gráda and Chevet, ‘Market segmentation’, 723. 35 When the term in brackets is negative – the price in T – 1 was higher in the core market than in the peripheral market – the coefficient being negative means that prices in the peripheral market still need to increase somewhat to establish equilibrium. When the opposite would be the case, the price in the peripheral market would have to decrease. The half life of a shock should be determined as follows: (ln 2) ÷ γ. Since the data used in the present analysis have different characteristics, the half life values in absolute terms should be interpreted with care. Yet, changes through time can be followed without any problems. 36 Because of the difficulty in finding proper explanations for all the series under consideration, it was decided not to include dummy variables to control for data peculiarities and it is probably for this reason that in two instances a coefficient higher than one was found. It is unlikely though that this will have distorted the overall conclusion. 37 Due to a lack of data, the end of the sample periods was slightly altered for Cologne (1777), Brussels and Douai (1792), London and Oudenaarde (1793).

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The integration of goods markets in northern Europe  |  49

Tuscany (R2). The coefficients have signs and values as would be expected. By calculating a certain number of such relationships for the two time periods, we can determine whether there were any changes through time. The following will present the actual test results, which will subsequently be placed in a broader economic context.

Table 2.1

The integration of two wheat markets with Amsterdam Town Arnhem Tuscany

1600-1699 β 0.55 0.13

γ -0.70 -0.32

R2 0.50 0.18

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Source: Based on Appendix I.

Now that the econometric model has been introduced, it is time to turn to the empirical results presented in Table 2.2. As claimed in the literature, the cases of Arnhem and Cologne illustrate that levels of integration decreased the further one went upstream on the Rhine. This should probably be attributed to the fact that Cologne was located in one of the most fertile graingrowing regions of Germany. The town played an important role in the grain trade along the Rhine and in general the hinterland could provide Cologne’s population with grain without problem.38 Because the region around Cologne was hence a major grain producer itself, local events had a great impact on price formation. There was thus a good reason why Cologne was influenced less by the Amsterdam staple-market prices. More important, however, is that overall the long-term coefficients (β), adjustment coefficients (γ) and goodness of fit indicators (R2) were higher during the eighteenth century than during the seventeenth century. This suggests that markets became better integrated structurally as time progressed; a conclusion that confirms earlier findings in the literature. Given the fact that the freight and transaction costs studied above did not decrease during the period under review, the question can be raised of how this tendency of markets to become more integrated could be realised. The availability of reliable and up-to-date information about prices and market conditions was crucial. Having access to such a supply of information was necessary for merchants to properly assess whether a moment of arbitrage had appeared – i.e. that

38 Eiden and Irsigler, ‘Environs and hinterland’, 43-57, 46-47.

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50  |  The economic consequences of the Dutch

the price gap was larger than transport and transaction costs – and to react appropriately to this situation. The question could thus be raised of what historical evidence there is to substantiate the existence of these improving information networks. Finnish historian Kaukiainen has been able to show that no major new techniques in the field of communication were required to increase the speed of information in the pre-telegraph period. Dispatch times had already been reduced prior to the introduction of the telegraph in the 1860s and 1870s. Faster means of transportation – i.e. steam-powered ships and trains – certainly played a role, but better organisation was also of great importance. Kaukiainen mentions matching the timetables of mail carriers and increasingly regular shipping as organisational aspects that were improved.39 It is believed that similar improvements were made during the seventeenth and eighteenth centuries. In the following, this section will provide evidence that points in this direction and the implications for market integration will also be reviewed further. This discussion will centre on the quality and speed of information.

Table 2.2

Integration of wheat markets in northern Europe with Amsterdam, 1600-1799

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Town Arnhem Bruges Brussels Cambridge Cologne Douai Eton London Oudenaarde Oxford Average (excl. The Netherlands) Average (incl. The Netherlands)

β 0.55 0.61 0.71 0.49 0.40 0.74 0.56 0.54 0.96 0.55

1600-1699 γ -0.70 -0.37 -0.48 -0.26 -0.13 -0.27 -0.37 -0.30 -0.60 -0.37

R2 0.50 0.18 0.27 0.12 0.16 0.21 0.18 0.17 0.32 0.16

β 0.52 0.73 0.59 0.84 0.49 1.30 0.71 0.55 0.92 0.70

1700-1799 γ -1.10 -0.44 -0.37 -0.71 -0.27 -0.40 -0.47 -0.27 -0.47 -0.43

R2 0.71 0.23 0.22 0.30 0.24 0.47 0.24 0.26 0.34 0.26

0.62

-0.35

0.20

0.76

-0.43

0.28

0.61

-0.39

0.23

0.74

-0.49

0.33

Source: Based on Appendix I.

39 Kaukiainen, ‘Shrinking the world’.

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The integration of goods markets in northern Europe  |  51

The early modern period saw the number, quality and diffusion of commercial publications increase throughout Europe. Price currents, marine lists, journals and private correspondence all contained information relevant to merchants who were contemplating their next business dealings.40 There is also much evidence that indicates that it became easier to send and receive information. For example, the postal system in northern Europe improved significantly. The postal histories of the Netherlands and England show that domestic networks became denser and in other regions substantial improvements were also made.41 In 1619 Stockholm and Hamburg were linked on a regular basis and in 1636 the Swedish postal services were founded. The number of letters delivered within Sweden increased from a few hundred annually at the beginning of the seventeenth century to several hundred thousand per year at the end of the century. The number of mail stations in the German Empire also increased rapidly. Whereas in 1632 there were about 200 stations, this figure had increased to more than 600 by 1714. Moreover, postage for Norway shows that it was much cheaper to send letters by the mid-eighteenth century then it had been a hundred years earlier see Table 2.3).42 The number of shipping movements in northern Europe had also increased, especially during the eighteenth century. With this, the potential amount of information transferred would also have risen sharply. Information on the number of unique ships passing through the Sound may be used to illustrate this. Whereas between 2,000 and 3,000 vessels passed through the Sound during the early decades of the seventeenth century the number usually ranged between 1,000 and 2,000 in the following hundred years. From around 1720 onwards a continuous increase set in, and at the end of the eighteenth century the number of vessels ranged between 5,000 and 6,000. From an annual average of 1,766 vessels between 1600 and 1699, the number averaged 2,764 vessels per year during the period 17001799.43 Clearly, the information networks in northern Europe developed and improved considerably between 1600 and 1800. The effects for the environment in which early modern merchants operated are clear. Dispatch speeds increased markedly. Whereas it took just under 60 hours to gallop from

40 McCusker, Origins of the business press; McCusker and Gravesteijn, Commercial and financial journalism; Neal, Rise of financial capitalism, 20-43. 41 Overvoorde, Geschiedenis van het postwezen; Ten Brink, Het Nederlandse postwezen; Kay, Royal mail. 42 Droste, ‘Sending a letter’, 137; Droste, ‘Information flow’; Veluwenkamp,’Communication patterns’, 128; Johannessen, Postverkets, 63; Schou, Postens historie, 9. 43 Degn, ‘The Sound toll’, Appendix 4. The number of unique vessels was determined by dividing the total number of ships passing through the Sound by two.

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52  |  The economic consequences of the Dutch

London to Edinburgh to convey the news of Queen Elizabeth’s death in 1603, for example, it took ‘only’ 45½ hours with the regular mail coach during the first quarter of the nineteenth century. Since in the former case a special envoy was used, regular times would have been longer and the reduction even greater than these figures suggest.44 Based on the correspondence of two Dutch merchant houses – Van Adrichem (1580s and 1590s) and De Neufville (1751) – Van Tielhof has been able to reconstruct the number of days it took to send letters from Gdansk to Amsterdam.45 Long dispatch times during the winter months were sharply reduced and the seasonal patterns almost disappeared. During the summer, letters also arrived several days earlier in Amsterdam. Whereas in the months of May to August it took an average of twenty-two days for such a letter to reach Amsterdam, during the 1580s and 1590s, the average in 1751 seems to have been around ten days. And even when only the fastest times were taken into account, dispatch times had still been reduced by one-third. The speed of information diffusion had thus increased significantly. Whereas the shipping sector may have reached its limits, in the field of information supply and diffusion, the early modern period certainly saw some major improvements. Having quicker access to good information from a wide network of locations made it much easier for merchants to profit when price differentials allowed for arbitrage. Also, as Jacks noted, it was easier to conduct trade with merchants with whom good financial and commercial ties existed. In Chapters 4 and 5 it will be shown how the ties with one specific group of foreign merchants – those in Denmark-Norway – improved during the seventeenth and eighteenth centuries. Above, it has also been shown that the more elaborate information network that came into existence resulted in a higher integration level of wheat markets in northern Europe.46 Both the long and short-term aspects of price synchronisation improved. That said, we would expect to observe one further effect on price formation. If merchants were aware earlier of profitable trading situations, price increases in the various regions should have become less pronounced as quality and speed of information improved. In addition, just the knowledge that there were foreign surpluses may have reduced the price elasticity in cases of shortages. Figure 2.9 shows that the large swings in the dispersion of grain prices gradually became less significant as the eighteenth century progressed. Differences in grain prices remained, but this should be attributed to the fact that freight

44 Kay, Royal mail, 22, 60. 45 Van Tielhof, The ‘mother of all trades’, 156-166. 46 Berg, Volatility and integration; Olsson, Storgodsdrift; and Olsson, ‘Manorial economy’, document how Sweden was increasingly integrated into the wider northern European economy and how domestic price synchronisation improved.

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2.7

35 30

The integration of goods markets in northern Europe  |  53

25 20

rates could not be reduced further. This explains why no structural decrease in15CV values could be observed and as long as prices stayed within the band10 width, CV values could theoretically move in any direction. 5 0 1600 Table 2.3

1610

1620

1630

1640

1650

1660

1670

Postage for sendingTrondheim letters from a selection of towns in 1650 regionChristiania Osloto fjord Gdansk and 1743 (in skillings and grams of silver) Town Bergen 2.8 Bragernes Copenhagen Fredrikshald 12% Fredrikstad 10% Kongsberg Kristiansand 8% Larvik 6% Moss 4% Tønsberg 2% Trondheim

1650 10 2 10 4 3 3 7 5 2 4 10

Skillings 1743 6 2 6 3 3 3 5 3 2 3 6

Grams of silver 1650 1743 2.6 1.3 0.5 0.4 2.6 1.3 1.1 0.7 0.8 0.7 0.8 0.7 1.8 1.1 1.3 0.7 0.5 0.4 1.1 0.7 2.6 1.3

0% 1580 1600 1620 1640 1660 1680 1700 1720 1740 1760 1780 1800 Source: Schou, Postens historie, 9; Johannessen, Postverkets, 63. brokerage, impost, galjootsgeld Value of the Danish skilling. Note: The silver contentmeasuring, of the skilling was based on Christiansen, measuring, brokerage, impost, galjootsgeld, customs duties

Figure 2.9 2.9 CV of the

ten-town sample, 1700-1780

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45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1700

1710

1720

1730

1740

1750

1760

1770

1780

Source: Based on Appendix I.

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54  |  The economic consequences of the Dutch

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2.5 Conclusion Trade played an important role in northern Europe during the early modern period. Goods were shipped all across the North and Baltic Seas and this chapter aimed to examine the effects that these trade flows had on the functioning and interaction of the various regional economies. The question was raised of whether the different markets became more integrated as the seventeenth and eighteenth centuries progressed. It has been shown that in the existing literature, two aspects of market integration are commonly studied: the convergence of price levels and the synchronisation of price movements. This chapter pursued both. While discussing price convergence in section 2.2, attention was directed to some of the problems associated with relying solely on this measure of market integration. Firstly, parallel changes in the variables of the model – e.g. the demand and supply functions, transport costs, transaction costs, and prices – may give a zero-sum result with respect to the convergence of price levels. This is despite the fact that the impact on the importing and exporting regions may be fundamental in terms of the volumes traded and the prices at which this happened. Secondly, the presence of transport and transaction costs implies that prices in two regions could move independently without being able to influence each other as long as the price gap was smaller than the costs associated with shipping goods from one location to the other. In such cases divergence or convergence does not reveal anything about whether markets were really integrated or not. Despite these limitations, convergence still remains an important measure for the integration of markets. Section 2.3 therefore measured whether price convergence could be observed in a set of wheat prices. The coefficient of variation was used as summary measure for the region as a whole and the resulting values did not show structurally lower values around 1800 than were observed two hundred years earlier. Information on freight rates, transaction costs and the market structure (i.e. the presence of competition among merchants) showed that the associated costs did not decline during the period 1600-1800. With respect to freight rates, this meant that the society studied was apparently stagnant in terms of transport technology for a long time. It was argued that, given these restraints, it should not be concluded that markets were not integrated. It was therefore decided to look at the synchronisation of grain prices because this provides more direct evidence of how merchants reacted when arbitrage became possible. Within the framework of price synchronisation it was shown in section 2.4 that, as the early modern period progressed, markets in northern Europe became better connected. And although only grain was studied in the present case, it is likely that this also applied to markets for other goods because mer-

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The integration of goods markets in northern Europe  |  55

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chants would not have restricted their correspondence only to grain prices.47 It was suggested that the improving information infrastructures of the seventeenth and eighteenth centuries played a key role in bringing markets closer together. Not only did better information become available through journals and price currents, information could also be dispatched quicker to other towns because postal services were established and because the number of shipping movements in northern Europe increased. This made it possible for merchants to react more quickly when chances for profit appeared. The fact that the volatility of international prices declined during the eighteenth century was probably the result of this. Amsterdam played a key role in these processes, because the town occupied a central position in the information network of northern Europe. To conclude, this chapter found that during the seventeenth and eighteenth centuries, markets in northern Europe became increasingly connected to each other. This was not caused by a decrease in real freight rates, but rather by substantial improvements in the quality and speed of information. Within a certain bandwidth each region could still take its own course, but outside the bandwidth foreign regions increasingly started to have an influence on each other.

47 In Chapter 5 the Amsterdam and London capital markets will be given as examples of wellintegrated early modern markets.

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3   | Labour markets and wage convergence

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3.1 Introduction The growth of the Dutch economy was accompanied by a fundamental reorganisation of its domestic labour market. However, this structural transformation had already started long before the Dutch Golden Age itself. Changes taking place in the countryside released workers, who migrated to Holland’s rapidly growing towns, and many of those who did stay in the countryside shifted from the production of bread grains to cattle farming, the production of summer grains and proto-industrial activities. While the number of workers in the agricultural sector decreased, urbanisation rates rose and increasing amounts of labour were directed towards the manufacturing and service industries. From the late sixteenth century onwards the growth of the Dutch economy also started to have an impact on foreign labour markets. The sharp rise in demand for labour and the subsequent increase in wages drew these foreign labour markets into the orbit of the Dutch labour market, since many foreign labourers were attracted by the availability of work and the high wages that were paid in the Netherlands. An international labour market thus emerged. Recently, Dutch historian Van Lottum has improved our knowledge of the



Van Zanden, Rise and decline; De Vries and Van der Woude, The first modern economy; Van Bavel and Van Zanden, ‘The jump-start’; Heerma van Voss and Holm, ‘Close encounters with the Dutch’; Van Bavel, ‘Rural wage labour’.  Van Lottum, Across the North Sea, Chapter 1.

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Labour markets and wage convergence  |  57

size of international labour migration in the North Sea region. He has estimated the number of people from the North Sea region residing in other North Sea countries in a number of benchmark years between 1550 and 1800. His estimates show that around the mid-sixteenth century only around 35,000 people did not live in the country in which they were born. During the second half of the century this number increased sharply and reached an estimated 130,000 by the year 1600. As the seventeenth century progressed this figure increased even further and topped 160,000 around 1650. From then on a decline set in that lasted until the late eighteenth century. A breakdown of these figures shows that migration within the North Sea region was not evenly divided between the receiving countries, but was dominated by migration to the Netherlands. Between 60% and 90% of the migrants that stayed within the North Sea region chose the Netherlands as their destination. This concentration of foreign labour on the Netherlands meant that during the first half of the seventeenth century an estimated 6% to 8% of the total population of the Netherlands was of foreign birth. Given the fact that most of these migrants found work in Holland and that less than half the Dutch population lived in the province of Holland, this meant that foreign-born labourers made an even more important contribution to Holland’s workforce. One of the experts in this field, Dutch historian Jan Lucassen, has estimated that during the seventeenth and eighteenth centuries between 12% and 18% of Holland’s total population was born abroad. Germans, Scandinavians and Belgians formed the largest groups. Migrants formed a significant part of the urban population in the western Netherlands. They were found not only in Amsterdam, but also made up a considerable proportion of the population in towns such as Leiden, Haarlem, Rotterdam, The Hague and Enkhuizen. It is likely that the transfer of such large numbers of labourers from one region to the other left its mark on wage levels in both labour-sending and labour-receiving regions. The factor price equalisation theorem argues that as the size of the labour supply decreased in the sending country, wages should have increased. In the receiving economy the opposite would have happened. The additional supply of foreign labourers alleviated the increasing wage



Van Lottum, Across the North Sea, Chapter 1. The classic studies on this topic are Lucassen, Migrant labour; Lucassen, ‘Long distance migration’; Lucassen and Penninx, Newcomers; and Lucassen, ‘Immigranten’. For a broader European perspective, see Page Moch, Moving Europeans.  Van Lottum, Across the North Sea, Chapter 2.  De Vries and Van der Woude, The first modern economy, 50, 52.  Rommes, Utrecht, 88, shows that quite similar rates were achieved in Utrecht. Lucassen and Lucassen, ‘Niederlande’, estimate the share of foreigners in the whole of the Netherlands at 5% to 8%. See Van Zanden, Rise and decline, 53; Van Lottum, Across the North Sea, Figures 1.2 and 1.7, Chapter 2; and Lucassen, ‘Immigranten’, Tables 4, 5, 7, 9, 11, 13 and 16.

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58  |  The economic consequences of the Dutch

pressure on the labour market. This chapter will be occupied with determining whether these effects of labour migration can be documented for the North Sea region between 1500 and 1800. The focus will be on wages since these reflect the value that is attributed to labour in changing demand and supply conditions. The question to be answered is whether the pull of the Dutch labour market reduced wage differences in northern Europe. Labour markets, migration and wage formation should not be analysed in isolation though. Endogenous processes (e.g. specialization and the rise of new econ­ omic sectors) or exogenous events (e.g. warfare) could also have played a role. This chapter will therefore try to incorporate such alternative variables as far as possible. This chapter will continue as follows. Section 3.2 will consider the type of sources used in this chapter – i.e. wages – and the methodological difficulties associated with using them and making them comparable. The data will be analysed in section 3.3. Most studies usually only provide data for (some of the) major towns in the region such as Antwerp, Amsterdam and London. This section will contribute to the historiographical discussion on wages by collecting data for a range of minor towns. In addition real wages will be constructed for some other important northern towns – Copenhagen and Stockholm – as well. Sections 3.4 and 3.5 will present case-studies on Scotland and Norway – countries with populations that were highly mobile – in which the impact on these labour-sending regions will be analysed in more detail. Section 3.6 will summarize and conclude.

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3.2 Data and considerations In economic history there is a large historiography that uses wages or discusses the use of wages as source material. In the present section attention will be paid to some of the recurring aspects in these publications. The first thing that should be realised is that comparing wage levels across a large geographical area such as the North Sea basin over a long period as is the case here, seriously limits the types of labour suitable for analysis. In order not to be comparing apples and oranges, this chapter will be restricted to the comparison of daily wages paid to urban construction labourers. Because early modern building projects involved large numbers of workmen and high material costs, careful monitoring of finances was necessary. The fact that these projects were often commissioned by governments and (religious) institutions has probably helped historians as wages were recorded and the respective administrative records have survived. Relatively speaking, much is

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Labour markets and wage convergence  |  59

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therefore known about the wages paid for this kind of labour. It is for these reasons that building labourers’ wages have a long history of being used in international comparative research. Since the wage comparison in section 3.3 will be based on building labourers’ wages, it is important to note that the Dutch building industry was heavily influenced by the availability of foreign labour. In Amsterdam, for example, workers of foreign origin were strongly represented as (day) labourers (64%) and hodmen (79%). It is unlikely that by only looking at building labourers’ wages an inaccurate picture of the wage level of the average urban labourer will be obtained. During the period studied here the specific requirements of building labourers were not high and the required basic skills were relatively uniform over time and place.10 But because building labourers could have performed simple manual labour in other sectors of the economy just as well, their employers had to compete with other sectors for their labour. Thus wage differences between the different parts of the urban economy could not become too large because otherwise labourers would not be willing to work in the building industry. Changes in building labourers’ wages are therefore representative of a broader spectrum of relatively unskilled jobs. Evidence for Holland, where data are available for different sectors, shows that the remuneration of simple labour in construction, textiles and the Navy were roughly subjected to the same patterns over time. This presumably would not have been very different in foreign towns.11 In addition to this intra-urban competition for labour, it should be remembered that there was also competition for labour between the various towns in Holland. Because these towns were located relatively close to each other and because all towns were subjected to the same process of economic growth, wages developed in a roughly similar way in the urban centres. Moreover, agricultural wages also developed in approximately the same way as urban wages did.12 This was probably because Holland’s agriculture had not spe-

  

10 11 12

Only for Norway were wages from a different sector – the Baaseland blast furnaces – used instead of building labourers’ wages, because building labourers’ wages were not available. Phelps Brown and Hopkins, A perspective, and more recently Söderberg, ‘Real wage trends’; Van Zanden, ‘Wages and the standard of living’; and Allen, ‘The great divergence’. Knotter and Van Zanden, ‘Immigratie en arbeidsmarkt’, 414; Van Zanden, Rise and decline, 53. It should be noted that these figures are based on marriage banns. Since proletarians had a smaller chance of marriage than those performing skilled work, more foreigners would actually have been active in this sector. This, however, would also have been the case for local workers. It therefore remains unclear to what extent these figures should be corrected. In any case, it is clear that foreign labour was very important in the building industry. Van Zanden, ‘De timmerman’, 110. Van Zanden, ‘The “revolt of the early modernists”’, 622-625. This is nicely illustrated by Noordegraaf, Hollands welvaren, 151.

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60  |  The economic consequences of the Dutch

cialized in grains but in the more expensive vegetables and dairy products. Grain was imported from the Baltic and, as a significant part of Holland’s own agricultural production was exported, wages in agriculture were more subject to the wage patterns in the urban economy. Towns were also never far away so their influence on the surrounding countryside would have been pervasive.13 In other regions the density of the urban network was much lower and therefore it remains to be seen to what extent a similar situation existed abroad. Since foreign migrants often migrated directly from the countryside to Holland, this might raise the question of to what extent foreign urban wages were representative of wage levels in the actual migrant-sending areas. Therefore it is assumed here that Holland and the foreign towns in consideration competed for the services of the same labourers. This would mean that migration to the Netherlands would also exert increasing pressure on wage levels in the foreign towns. Further issues relate to the season in which work was performed, the number of days actually worked in a year and the contribution that women, children and other members of the household made to the overall family income. With respect to the first, some evidence for the Netherlands will be presented here by way of illustration. During the summer – when the days lasted longer than during winter – the typical working day lasted eleven to twelve hours. From 11 November to 22 February it was common to pay winter wages and, since the working day lasted about seven to eight hours only, winter wages were about twenty to twenty-five percent lower than summer wages.14 No detailed information is available about how many days labourers tended to work in summer and winter. Moreover, Jan de Vries has highlighted the fact that during the eighteenth century labourers appeared to have been willing to give up free days in order to earn additional income. This income could subsequently be used to purchase the new consumer goods of the time.15 Closely related to this method of increasing total annual income was the contribution made by women and children. Recent research has uncovered much information about the importance of this form of labour participation.16 With respect to these topics it is as yet impossible to construct a detailed time series containing information on the annual income of the entire household for all the regions involved in the present study. For this reason the analysis has had to be restricted to the daily wage that building 13 14 15 16

Van Zanden, ‘The “revolt of the early modernists”’, 622-625. De Vries and Van der Woude, The first modern economy, 615-616. De Vries, ‘Industrious revolution’. For Holland, see Van Nederveen Meerkerk, De draad in eigen handen; Van Nederveen Meerkerk, ‘Segmentation’; and Van Nederveen Meerkerk and Schmidt, ‘Tussen arbeid en beroep’. The international literature includes Ogilvie, A bitter living; Lane, Raven and Snell, Women, work and wages; and Burnette, ‘Female day-labourers’.

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Labour markets and wage convergence  |  61

labourers earned during the summer. It should also be realised that labourers were not principally interested in the size of their nominal wage but in the amount of goods that they could purchase with it. For this reason it would be preferable to include goods prices in the analysis as well. This has been done in the literature on wages by expressing wages in the amount of grain (e.g. rye or wheat) that could be purchased with the wage.17 The underlying idea is that grain and grain products (e.g. beer and bread) formed an important part of a worker’s ­ budget. Deflating wages using grain prices is a relatively easy procedure since grain prices were almost always available. We should be aware, however, of the particularities involved in this procedure. On the one hand, it is clear that deflating nominal wages using grain (products’) prices can significantly reduce the differences in nominal wages. For example the difference that existed between the western Netherlands (represented by Alkmaar) and the eastern Netherlands (represented by Kampen) was significantly reduced and even disappeared once the price of bread had been taken into account.18 On the other hand, low grain prices in grain-producing regions such as Poland might result in high grain wages while this does not properly represent the standard of living in this particular region. The Polish data also show that the further away one was from the inland grain-producing region (e.g. Gdansk instead of Cracow) the lower the grain wages were; the reduction could be as great as one-half or two-thirds.19 The literature suggests two ways of coping with this incomplete approach. Firstly, wages can be expressed in their corresponding amount of precious metal. According to various authors the resulting values represent the performance of the economy better than grain wages. Van Zanden concludes, for example, that ‘there was a clear relationship between the level of economic development and silver wages’.20 As within the present northern-European context currency systems were based on the silver content of their coins, wages have been converted to grams of silver.21 Secondly, one could try to collect evidence on consumption patterns in order to create a representative basket of consumables that the average early modern consumer would have purchased. The value of this basket – the consumer price index – can subse-

17 18 19 20

Van Zanden, ‘Wages and the standard of living’. Van Zanden, ‘Levensonderhoud en loonvorming’. Van Zanden, ‘Wages and the standard of living’, 185-188. Van Zanden, ‘Wages and the standard of living’, 182. Allen, ‘The great divergence’, and Broadberry and Gupta, ‘Great divergence’, make a similar point. 21 Van Zanden, ‘Wages and the standard of living’, 180, assumes that ‘in the long run there was a link between the rate of exchange and the intrinsic value of the coinage’. Metz, Geld, Währung und Preisentwicklung, xxxi, xxxv-xxxvi, reports supporting evidence of a European ‘currency region’.

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62  |  The economic consequences of the Dutch

quently be related to labourers’ wages in order to determine how many baskets their wage could purchase. This outcome then represents the worker’s purchasing power or real wage.22 A balanced basket explicitly takes into account the differences in price structure that result from the fact that both agricultural and manufactured goods are consumed, as well as the fact that some goods are tradable while others are not. The problem with this approach is, however, that consumption patterns may have differed across locations and that the consumption pattern of only one family member is taken into account. Recent fine-tuning of the real wage methodology by Allen has resulted in so-called welfare ratios. These not only take a labourer’s family into account but also the number of days actually worked. Allen assumed that a labourer worked 250 days per year, that he was the sole income earner, and that he had to provide for his wife and two children all year around. In this way one can determine the position of the family vis-à-vis the subsistence line, which by definition corresponds with a welfare ratio of 1.0. A welfare ratio of 1.0 implies a ‘barely acceptable’ standard of living in which there was nothing left for luxuries. The welfare ratio can be treated as an indication of the extent to which additional family income was required to maintain a basic standard of living. Although a single basket of consumables is, in principle, used for all regions, the procedure is not necessarily static because it does enable one to allow for specific local differences in production and consumption, for example, by substituting coal for peat or oil for butter.23 Converting nominal wages to their corresponding amount of precious metal is most easily done because this only requires information about the metallic content of the respective currencies. Because much has been published on this topic, the required data were relatively easily obtained. However, including grain prices in the analysis adds another variable for which data need to be collected. Since the necessary data were not always available, this meant that fewer grain wages than silver wages could be computed. Understandably, determining the annual price of a basket of consumables required even more data. Thus the practical objection to using this method is that for many early modern locations the data needed to determine welfare ratios were simply not available. Calculating welfare ratios was therefore only possible for a few locations. Given these data particularities, this chapter will exploit all three methods – silver wages, grain wages (rye

22 See Phelps Brown and Hopkins, A perspective, for an early attempt to apply this procedure to pre-industrial Europe. 23 Allen, ‘The great divergence’. To return to the example of the standard of living in Poland, both silver wages and welfare ratios show that living standards were much lower than grain wages would suggest.

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Labour markets and wage convergence  |  63

and wheat will be used) and welfare ratios – in order to get as accurate a picture as possible.

3.3 Wages in northern Europe

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In the last twenty years, three authors – Söderberg, Van Zanden and Allen – have published comparative studies on wages in (northern) Europe.24 As has already been discussed in section 3.2, different instruments were used to measure the purchasing power of wages. Söderberg calculated the amount of bread unskilled labourers could buy with a daily wage and Van Zanden determined silver and grain wages. Allen computed silver wages, but also constructed welfare ratios. The evidence that they offered of living standards in northern Europe showed that silver and real wages were generally highest in Amsterdam and London.25 Although all three studies made an important contribution to our understanding of wages and living standards in northern Europe, it should be pointed out that the data on which these conclusions were based, were not geographically representative. Evidence for northern Europe was mainly provided for the successive economic leaders: Antwerp, Amsterdam and London; Gdansk being the only exception to this.26 The implication of this is that wages in large areas of the North Sea region have remained uninvestigated. This is not only the case for more peripheral countries such as Scotland, Norway, Sweden and Denmark, but also for the less important areas within the developed economies themselves. Much still remains unclear therefore about wage levels in northern Europe. One consequence of this is that in the literature covering the rise of the West, data from the economic leaders have been taken to be representative of the whole of northern Europe. Given the present lack of data in the comparative literature, it remains to be seen to what extent this is true.27 The consequence of this is that the present section 24 Söderberg, ‘Real wage trends’; Van Zanden, ‘Wages and the standard of living’; Allen, ‘The great divergence’. 25 Various explanations have been forwarded to explain the difference in wage levels. Acemoglu, Johnson and Robinson, ‘Rise of Europe’, and Chor, ‘Institutions, wages, and inequality’, argued that secure property rights were crucial. With respect to Holland, Van Bavel and Van Zanden, ‘The jump-start’, point out that Holland being a frontier economy was central in bringing about relatively high wage levels. Central to the latter theory was that in medieval Holland, land was relatively abundant whereas labour was relatively scarce. This situation resulted in competition for the services of the available workers, which resulted in the high wage levels. 26 Söderberg included a more diverse range of towns, but then he only presented evidence for the post-1730 period whereas Van Zanden and Allen focused on much longer periods. 27 See, for example, Broadberry and Gupta, ‘Great divergence’; Allen, ‘Europe and Asia’; and Allen, ‘Explaining’.

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64  |  The economic consequences of the Dutch

will actually serve two purposes. Firstly, of course, more data must be collected to observe whether wages converged to levels common in the western Netherlands during the early modern period. Secondly, collecting more data will enable us to determine to what extent wage levels in the economic centres were representative of the whole of northern Europe.28

Figure 3.1

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Locations for which wage data are available

The starting point of this study has been the wage database compiled by Allen. Since this database only provides evidence in northern Europe for the towns of Amsterdam, Antwerp, London and Gdansk, additional evidence

28 Obviously, one may wonder why the present study will be able to uncover evidence that was not included in the studies by Söderberg, Van Zanden and Allen. There are various reasons for this. Firstly, it is not the principal intention of the present study to only construct welfare ratios. It was also not deemed necessary to construct continuous time series. This means that the more fragmentary evidence could still be of interest and use. Secondly, with respect to the Scandinavian countries, language barriers may have prevented easy access to the available sources and finally, in the case of Sweden the confusing currency system may have hindered the use of available data.

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Labour markets and wage convergence  |  65

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was collected from published sources.29 A more detailed discussion of these sources can be found in Appendices I and II. The objective was to obtain an evenly-balanced geographical distribution of wages. Figure 3.1, which gives an overview of the locations for which data are included, shows that the data set used here is more geographically representative than that commonly used in the literature. In some instances it has not proved possible, however, to obtain data for particular regions. Data for western Germany, for example, are lacking but wages from Strasbourg, Augsburg and Leipzig have been used to fill this gap. Fortunately, for other regions rich data sources were available. Owing to this, this section will be able to compute welfare ratios for two northern European towns: Copenhagen and Stockholm. For clarity’s sake wages will be presented in a tabular form as averages for 25-year periods. As it has been argued that the western Netherlands were the main focal point for migrating North Sea labourers, all wages will be related to the Dutch wage level. As was the case for the goods market, migration also involved transport and transaction costs. Van Lottum therefore included these costs when typifying early modern migration. When driven by economic motives alone, migration and wage convergence will only take place once the wage differential has become large enough to allow for arbitration. Van Lottum believes that most migrants that went to the Netherlands, did so to improve their economic position. But did this shift of labour from one region to the other also lead to wage convergence? The following part of this section presents the results.

29 The Amsterdam wage series presented by Allen actually refers to the average wage series constructed by De Vries and Van der Woude in The first modern economy, 610-611, for the western Netherlands. Although Amsterdam wages were probably somewhat higher than this average (cf. Nusteling, Welvaart en werkgelegenheid, 252-254), this is not very problematic since – as was outlined in section 3.1 – foreign migrants could be found everywhere in Holland. I have chosen not to use Allen’s figures for Oxford since they are in fact a composite wage series for southern England. Instead separate wage series for southern English towns have been used.

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66  |  The economic consequences of the Dutch

Table 3.1

Wages in the Netherlands and Belgium (in grams of silver and litres of wheat or rye)

Silver Western Netherlands Eastern Netherlands Antwerp Ghent Wheat Western Netherlands Eastern Netherlands Antwerp Ghent Rye Western Netherlands Eastern Netherlands Antwerp Ghent

1500- 15251524 1549

15501574

15751599

1600- 16251624 1649

16501674

16751699

1700- 17251724 1749

17501774

17751799

2.93 1.85 2.71 2.88

3.93 2.91 4.79 4.06

5.43 3.66 6.97 5.27

6.77 4.61 7.70 6.30*

7.68 5.73 7.40 6.78*

8.33 6.26 7.17 7.23*

8.58 5.99 6.95 7.19

8.86 5.57 6.92 6.09

8.99 5.89 6.92 6.02

9.17 6.09 6.92 5.36

9.23 5.88 6.92 5.61

8.72 4.60 9.29 7.55

10.93 7.43 11.41

9.30 7.30 8.11

11.02 10.14 9.03

15.45 11.51 9.57

14.47 11.20 11.55

15.37 12.59 13.64

12.89 11.17 13.42 7.66

10.87 8.45 11.21 8.79

12.03 6.76 17.25 11.00*

15.97 11.60 18.36 19.72*

13.79 10.43 11.97 12.60*

17.37 13.15 14.87 18.55*

21.40 15.24 14.82 16.23

21.83 14.77 18.03 18.34

24.33 16.98 22.19 21.13

21.50 15.01 20.98 16.87

17.76 11.42 17.80 15.70

3.19 2.26 3.25 2.69

3.39* 11.28 13.06

8.98 8.54

7.89

15.73

12.83 5.91* 14.77

9.92 5.17 15.42

17.56

Source: See Appendix II.

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Note: * signifies that less than 10 entries were available for the respective period.

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Labour markets and wage convergence  |  67

Table 3.2

Wages in England (in grams of silver and litres of wheat)

Silver Cambridge Carlisle Chester Dover Exeter Hull Lincoln London Maidstone Newcastle Oxford Wheat Cambridge Dover Exeter London Maidstone Oxford

15001524

15251549

15501574

15751599

1600- 16251624 1649

16501674

16751699

1700- 17251724 1749

2.88

2.16

3.21

4.11 2.86* 3.66* 5.58

4.38 3.48* 3.75* 5.57

5.94 5.48 4.37* 5.57

6.53 5.27* 4.76* 5.79

2.88* 5.01

3.65* 3.49 6.41

3.57 3.73 7.80

4.64 4.48 9.28

7.42* 4.18* 4.59 5.57* 6.53 5.36 5.57* 4.72 4.64* 10.02 10.24

4.30 5.19

3.06

0.86* 2.72* 2.86 3.41

3.87 3.64* 2.88* 4.37

2.88* 3.60

2.66* 2.48 1.90* 2.75 4.21

2.52* 2.88

2.26

2.53* 3.35

2.82 3.84

3.54* 3.87

4.84 4.27

5.57* 5.57

5.79

18.33

11.75

12.34

10.33

7.58

6.68

9.78 6.20

10.98 6.36

17.71

13.51

11.56

9.96

10.49 11.18

12.19

14.27

6.42* 5.31

11.52*

6.82 6.10 5.16 10.73 7.42

17501774

17751799

5.57* 7.15 5.57* 11.17 7.46

6.19* 5.57* 14.33* 7.05* 9.69 11.71 10.26 16.61 19.69 16.95 13.17 10.67

Source: See Appendix II.

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Note: * signifies that less than 10 entries were available for the respective period.

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7.00

11.90 9.23 9.06

7.91 14.09 10.61

68  |  The economic consequences of the Dutch

Table 3.3

Silver wages in northern Europe (in grams of silver) Country

Town

1500- 15251524 1549

Scotland Aberdeen Edinburgh Norway Baaseland Sweden Stockholm Gdansk Poland Denmark Copenhagen Ribe Germany Augsburg 2.19 Emden Hamburg Leipzig Strasbourg 3.66

2.12

15751599 1.76* 2.39

16001624 2.74 2.31

16251649 2.81 2.71

2.12 2.06

2.77 1.90

2.74 2.37

3.50 3.23

4.31 4.27

2.10

2.89

3.24

2.96

4.95

3.69

15501574

1.89 3.40

1.89 3.38

3.23 4.46

3.79 4.23

1650- 1675- 1700- 17251674 1699 1724 1749 4.30* 3.48* 3.71* 3.53 5.29* 4.66* 4.49 4.60 5.02 4.70 4.63 4.02 3.92 3.61 5.98 4.27 3.51 4.98 5.08 4.44 3.55 4.96 4.54 4.19 4.18 4.34* 5.25 4.28 3.50 3.82 3.53 3.18 3.00 2.89 2.88

1750- 17751774 1799 4.22 4.53* 4.42 3.61 4.85 4.12 4.31 5.06 5.58 3.21 3.29

6.31 5.05* 5.05 3.88 4.91 4.38 5.20 5.44* 3.00 3.38

Source: See Appendix II. Note: * signifies that less than 10 entries were available for the respective period.

Table 3.4

Rye wages in northern Europe (in litres of rye)

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Country

Town

1500- 15251524 1549

1550- 15751574 1599 16.89* 9.59

1600- 1625- 1650- 1675- 1700- 17251624 1649 1674 1699 1724 1749 England London 14.91* 10.34* 28.53 33.94 Scotland Aberdeen 6.61* 24.23* 13.06* Norway Baaseland 11.83* Sweden Stockholm 18.12 14.20 11.93 13.50 13.89 12.51 15.72 15.71 15.45 Gdansk Poland 16.97 10.53 10.71 12.04 13.11 15.05 16.29 16.61 15.07 Denmark Copenhagen 18.03* 12.99* 12.22 Ribe 20.32 21.67 18.38 14.27 Germany Augsburg 14.01 9.85 8.98 8.36 5.98 10.68 22.58 14.82 12.99 10.61 Emden 16.26* Hamburg 15.12 12.51 10.87 10.73 13.42 15.38* 19.27 15.88 16.56 16.15 Leipzig 6.03* 7.04 8.51 11.57 18.45 13.80 13.46 12.65 Strasbourg 35.91 25.33 12.78 9.53 14.07 8.36 15.40 8.72 10.27 10.26

1750- 17751774 1799 27.33 23.66 11.68* 12.77 13.29 13.83 13.42 9.72 15.82 12.97 10.90 10.91

Source: See Appendix II. Note: * signifies that less than 10 entries were available for the respective period.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

9.79* 9.93 11.08 11.54 11.81 10.19 10.17* 11.99 10.14

Labour markets and wage convergence  |  69

Table 3.5

Wheat wages in northern Europe (in litres of wheat) Country

Town

1500- 1525- 15501524 1549 1574

15751599 3.49* 12.59* 6.54

Scotland Aberdeen Edinburgh Sweden Stockholm Gdansk Poland Denmark Copenhagen Germany Augsburg Emden Hamburg Leipzig 4.79* 5.27 Strasbourg 27.44 20.36 10.66 7.70

16001624 6.68* 5.22

16251649 5.87* 4.99

6.39 6.82 10.65 6.15

1650- 1675- 1700- 17251674 1699 1724 1749 15.39* 7.22* 8.49* 6.55 10.29 11.14 9.07 9.05 9.51 15.51* 11.76 8.78* 7.47 14.99* 10.98* 14.48 11.03 9.91 8.81 11.32 6.02 6.61 7.02

1750- 17751774 1799 6.22 8.88 7.95 9.64 6.51 12.12 9.30* 7.25 6.84

Source: See Appendix II.

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Note: * signifies that less than 10 entries were available for the respective period.

The first question that should be answered here is to what extent were the wages that were paid in Antwerp, Amsterdam and London representative of their respective countries as a whole. Tables 3.1 and 3.2 show that silver and grain wages were generally higher in the major economic centres than in the smaller towns. Of course other products are not directly taken into account here, but it is already clear from these figures that wage levels in the core towns cannot be taken as being representative for their respective countries. That this also was the case for the rest of northern Europe becomes clear when including data from other countries as well. Silver and grain wages were even lower in these countries (see Tables 3.3, 3.4 and 3.5). As enough price data were available for some towns, this conclusion can also be confirmed by welfare ratios (see Table 3.9). Stockholm and ‘western’ Germany clearly lagged behind the economic centres. Only Copenhagen – and to some extent Gdansk as well – managed to realise relatively high living standards. In this respect they seem to have belonged more to the developed economic centres of the North Sea basin than to the Baltic commercial centres. But even in those two cities welfare ratios remained well below the levels common in the three core cities. Now that wage levels have been introduced, it is necessary to determine how foreign wages developed in comparison with Dutch wages. Convergence will be tested for by calculating wage ratios between the other regions and the western Netherlands. This was done because the focus on the Netherlands

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

7.87* 7.48 6.87 8.66 7.84 8.35* 8.22 6.15

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70  |  The economic consequences of the Dutch

was much stronger in the labour market than in the goods market.30 Table 3.6 illustrates how foreign silver wages developed in relation to wages paid in the western Netherlands. To start within the Netherlands themselves, the eastern part of the country seems to have maintained a wage level of 60% to 75% of the wages paid in the more developed part of the country. In Belgium, Antwerp in particular rapidly improved its relative position during the sixteenth century. This process was consistent with the flourishing of commerce in this part of the North Sea region.31 Once Amsterdam had taken over this role, however, the relative position of Antwerp initially declined rapidly for about fifty years and then decline became more gradual. On the other side of the Channel, English towns lost some ground during the sixteenth century. While this process continued well into the seventeenth century in the more provincial towns, the recovery process had already started in London from the beginning of the century. During the seventeenth and eighteenth centuries the wage gap closed as the English economy started upon its own path of economic growth. In the second quarter of the seventeenth century average London wages were already higher than Dutch wages, but, since wage levels were higher in London than elsewhere in the country, a town such as Newcastle only approached the wage level of the western Netherlands during the last quarter of the eighteenth century.32 Further north, Edinburgh wages also decreased in value in relation to Dutch wages until the first quarter of the seventeenth century. Considerable convergence set in during the eighteenth century, but the averages in Table 3.6 do not fully show this accomplishment. Figure 3.2, presented later in this chapter, shows more clearly the rapid increase in Edinburgh wages that had set in around 1760. During the late eighteenth century Edinburgh silver wages eventually surpassed Dutch wage levels. When shifting our focus to Scandinavia and the Baltic, long-term data are only available for Stockholm and Gdansk. Table 3.6 shows that Stockholm wages were usually between 50% and 60% of Dutch wages. Gdansk silver wages were even lower and usually ranged between 40% and 50%. The decrease in value and subsequent recovery during the eighteenth century seems to have been characteristic of wages in this region. Based on the data for Stockholm and Gdansk, labourers in this part of Europe actually lost ground compared with Dutch workers. Due to a lack of sufficient data, it is as yet difficult to make inferences

30 Because production and trading patterns were far more diffuse, in Chapter 2 it was preferable to determine a coefficient of variation for the region as a whole instead. 31 Van der Wee, Growth of the Antwerp market. 32 In fact, the Dutch wage level was exceeded by 1790, but this is not expressed in Table 3.6 because only average values have been taken into account there.

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Labour markets and wage convergence  |  71

about the long-term pattern in northern Germany. When the wages for ‘western’ Germany are taken into account, it becomes clear that this region lost ground substantially during the three centuries under review. Most of this took place during the sixteenth century. The loss was so severe that eighteenth-century silver wages became even lower than those in Scandinavia and the Baltic. The data for Hamburg and Emden suggest that during the eighteenth century wage levels were higher in northern Germany.33

Table 3.6

Silver wage ratios in comparison with the western Netherlands

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Country

Town

Netherlands Eastern Netherlands Antwerp Belgium Ghent Cambridge England Dover Hull London Newcastle Aberdeen Scotland Edinburgh Baaseland Norway Stockholm Sweden Gdansk Poland Copenhagen Denmark Ribe Emden Germany Hamburg Leipzig Augsburg Strasbourg

1500- 1525- 1550- 1575- 1600- 1625- 1650- 1675- 1700- 1725- 1750- 17751524 1549 1574 1599 1624 1649 1674 1699 1724 1749 1774 1799 0.63 0.71 0.74 0.67 0.68 0.75 0.75 0.70 0.63 0.65 0.66 0.64 0.93 0.98 0.98 1.05 0.95* 1.23 0.87*

1.02 0.84 0.69 0.90 0.85* 0.87

1.22 1.04 0.81 0.87 0.60 1.07 0.62*

1.29 0.98 0.72 0.81 0.57* 0.93 0.50 0.19* 0.60 0.43

1.14 0.97* 0.61 0.83 0.52* 0.95 0.56* 0.30 0.34

0.97 0.91* 0.57 0.73 0.49 1.02 0.61 0.30 0.37

0.64 0.71 0.51 0.52 0.56 0.64 0.49 0.44 0.48 0.55

0.86 0.85* 0.71 0.67 0.56 1.11 0.67* 0.47* 0.44* 0.54 0.56 0.54

0.75 1.25

0.42 0.35 0.66 0.74 0.61 1.16 0.88 0.63

0.81 0.84 0.76 0.67 0.62 1.17

0.78 0.69 0.85* 0.64* 0.64* 1.16 0.70*

0.77 0.67

0.75 0.59

0.68 1.19 1.22

0.75 0.61

1.29 0.98

0.38* 0.61* 0.54 0.57 0.47 0.44 0.70* 0.48* 0.55 0.48

0.48 0.49 0.51 0.41 0.44 0.64 0.60 0.53 0.66 0.56 0.38 0.35

0.43 0.47 0.33

0.38 0.52* 0.52 0.40 0.39 0.39 0.49* 0.58 0.39 0.47 0.32

0.46 0.49* 0.48 0.39 0.53 0.45 0.55 0.61 0.35 0.47 0.36

Source: See Appendix II. Note: * signifies that less than 10 entries were available for the respective period.

33 Contrary to other European currencies, no series of the silver content of the Hamburg currency is available. The literature on the topic is also somewhat unclear. Consequently silver wages could only be computed for the post-1725 period, whereas grain wages were calculated for longer periods. See, for example, Schneider, Banco, species und courant, and Sprenger, Das Geld der Deutschen.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

0.68 0.55* 0.55 0.42 0.53 0.47 0.56 0.59* 0.33 0.37

72  |  The economic consequences of the Dutch

Table 3.7

Rye wage ratios in comparison with the western Netherlands Country

Town

Netherlands Eastern Netherlands Antwerp Belgium Ghent Aberdeen Scotland Baaseland Norway Stockholm Sweden Gdansk Poland Copenhagen Denmark Ribe Augsburg Germany Emden Hamburg Leipzig Strasbourg

1500- 1525- 1550- 1575- 1600- 1625- 1650- 1675- 1700- 1725- 1750- 17751524 1549 1574 1599 1624 1649 1674 1699 1724 1749 1774 1799 0.52* 0.53 0.56 0.72 0.77 0.77 0.72 0.69 0.70 0.70 0.66 1.14

1.00 1.07 2.46

1.17

1.60

1.56 1.20 0.92 0.83 0.71 0.84 0.92 0.91* 1.27* 1.13* 0.98* 0.77 0.86 0.87 0.52* 1.26* 0.74* 0.52* 1.46 1.47 1.03 0.88 1.08 0.75 0.77 0.74 0.64 1.38 1.13 0.92 0.77 0.95 0.86 0.76 0.76 0.62 0.80* 0.72* 0.50 1.09 1.05 0.88 0.58 0.81 0.93 0.73 0.40 0.80 1.30 0.73 0.61 0.44 0.76* 0.99 1.14 0.93 0.86 1.11* 1.12 0.84 0.80 0.66 1.11* 0.62 0.56 0.87 1.23 0.67 0.66 0.53 1.95 1.31 0.86 0.88 0.63 0.91 0.43 0.47 0.43

1.01 0.81

1.01 0.84

0.56* 0.60 0.62 0.64 0.64 0.42 0.77 0.63 0.52 0.53

0.55* 0.58 0.63 0.66 0.68

Source: See Appendix II.

Copyright © 2008. Amsterdam University Press. All rights reserved.

Note: * signifies that less than 10 entries were available for the respective period.

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0.59 0.54* 0.69 0.53

Labour markets and wage convergence  |  73

Table 3.8

Wheat wage ratios in comparison with the western Netherlands Country

Town

Netherlands Eastern Netherlands Antwerp Belgium Ghent Cambridge England Dover Exeter London Maidstone Oxford Aberdeen Scotland Edinburgh Stockholm Sweden Gdansk Poland Copenhagen Denmark Augsburg Germany Emden Hamburg Leipzig Strasbourg

1500- 1525- 1550- 1575- 1600- 1625- 1650- 1675- 1700- 1725- 1750- 17751524 1549 1574 1599 1624 1649 1674 1699 1724 1749 1774 1799 0.58 0.69 0.78 0.90 0.77 0.78 0.84 0.84 0.80 1.24 0.98 0.91 1.03 0.81* 0.71 0.73

0.79

0.98* 0.98 1.25

1.15

0.65

0.89 0.76 0.54 0.43 0.97

0.82

0.89 1.04 0.67

1.07 0.78

1.52* 0.75* 0.66 0.81* 0.78 1.16 1.31 1.28 0.86 0.81

0.68 1.25 0.95

0.53* 0.61 0.94* 0.39* 0.58* 0.62* 1.16* 0.58* 0.62* 0.50 0.57 0.69*

0.46* 0.76 0.60 0.60* 1.21* 0.88 0.65* 0.44 1.07* 0.80* 1.32 0.77 0.72 0.58 1.00 0.42 0.47 0.49 0.71 0.61

0.57 0.79

0.62 0.78 1.00 0.71

0.53 0.70 0.61 0.73 0.48 0.94 0.74* 0.59 0.54

Source: See Appendix II.

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Note: * signifies that less than 10 entries were available for the respective period.

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0.62* 0.72 0.64 0.80 0.76 0.72* 0.78 0.51

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74  |  The economic consequences of the Dutch

The remaining part of this section will present a more complete perspective on wage levels by including goods prices in the discussion. Expressing wages in real terms is more difficult than simply expressing them in their metallic content; the prices of goods are also needed. As was mentioned in the previous section, the first step in gaining an insight into real wages is to express wages in terms of the amount of grain they could purchase. The advantage of this is that we get a better understanding of the purchasing power of wages, but as Tables 3.1-3.5 show, the effect of including a second variable is that the number of available quotations is markedly reduced. As was the case when wages were expressed in grams of silver, grain wages also were highest in the Low Countries and England. Relative to the western Netherlands, the flourishing of the Antwerp market during the sixteenth century (as shown by the value of rye wages) and the rise of England during the eighteenth century (illustrated by the value of wheat and rye wages) are again evident (see Tables 3.7 and 3.8). In contrast to Belgian silver wage values, Belgian grain wages recovered markedly during the eighteenth century. Copenhagen and Baaseland also somewhat improved their relative position from c. 1730 onwards. However, evidence for Copenhagen suggests that this may just have been the correction of a sharp fall in wage values that had occurred during the early decades of the eighteenth century. In relation to Amsterdam, rye wages in Gdansk and Stockholm decreased during the sixteenth century and stayed at these reduced rates until the end of the eighteenth century. Rye wages in Hamburg were on about the same level as those in the Netherlands during the first three sample periods of the sixteenth century. Decline then set in, but during the period 1625 to 1675 Hamburg wages recovered. Subsequently, however, a period of decline set in that seems to have lasted till the end of the eighteenth century. Data for Emden seem to support this downward trend. Finally, whereas silver wage ratios may only have increased slightly, the advance in grain wages in the eastern Netherlands was more pronounced. They increased between 1550 and the mid-seventeenth century and stayed at a fairly constant rate from then on. When one considers that by adding only one product to the comparison the number of real wages that could be calculated has already been reduced, it is clear that the construction of a whole basket of consumables was only possible for even fewer towns. Allen composed such baskets for Antwerp, the western Netherlands, London and Gdansk and his data for Leipzig, Augsburg and Strasbourg is used to represent western Germany. The present study has also been able to add evidence for Copenhagen and Stockholm. Tables 3.9 and 3.10 show that when a composite basket is used, Antwerp’s relative position also improved until the third quarter of the sixteenth century. The fall of Antwerp and the subsequent rise of Amsterdam as economic

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Labour markets and wage convergence  |  75

centre are reflected in the subsequent decline of welfare ratios in Antwerp compared to welfare ratios in the western Netherlands that lasted until 1650. From then on welfare ratios fluctuated at around 90% of the level common in the western Netherlands. The eighteenth-century recovery in grain wage values is thus absent from the evidence when other goods prices are included. London experienced a similar development to Antwerp, however the decline from the late sixteenth century onwards was more pronounced. In contrast to Antwerp, London was also able to improve its position during the course of the seventeenth century to a greater extent than was common in the western Netherlands. However, during the eighteenth century only a slightly higher standard of living was attained. As was the case in Antwerp, the rise of silver wages in London during the eighteenth century was thus also reduced sharply. Following the trend in most other northern European cities, Stockholm’s relative position seems to have improved during the first half of the sixteenth century, only to worsen again during the second half. During most of the following two centuries, Stockholm welfare ratios were between 55% and 65% of the level in the western Netherlands. Gdansk seems to have shared in this initial decline, but managed to improve in relation to the western Netherlands during the first half of the seventeenth century. Decline then set in and during most of the eighteenth century living standards in Gdansk ranged between 60% and 80% of the Dutch level. Copenhagen’s relative position improved after the first quarter of the eighteenth century, but again the data suggest that this was mainly the result of the recovery process that has been observed above. The data for ‘western’ Germany suggest that living standards did not improve in relation to the Netherlands during the sixteenth century. Therefore, this region did not follow the economic pattern of towns such as Antwerp, London or Stockholm. The decline that followed, however, was quite substantial and Leipzig and Augsburg were the only places that recovered from this blow to any extent. From the third quarter of the seventeenth century decline once again set in and at the end of the eighteenth century the relative position of this region had clearly worsened over the course of the previous three hundred years.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

76  |  The economic consequences of the Dutch

Table 3.9

Welfare ratios of labourers in northern Europe Country

Town

Netherlands Western Netherlands Antwerp Belgium London England Stockholm Sweden Gdansk Poland Copenhagen Denmark Augsburg Germany Leipzig Strasbourg

1500- 1525- 1550- 1575- 1600- 1625- 1650- 1675- 1700- 1725- 1750- 17751524 1549 1574 1599 1624 1649 1674 1699 1724 1749 1774 1799 1.42 1.32 0.94 1.20 1.43 1.25 1.33 1.51 1.52 1.57 1.48 1.34 1.48 1.53

1.32 1.31 0.96 1.08

1.22 1.32 0.90 0.73

1.34 1.19 0.74 0.74

1.58 1.15 0.80 0.89

1.14 1.16 0.84 1.03

1.24 1.34 0.81 1.03

1.31 1.41 0.94 1.06

1.02

0.82

1.33

1.20

0.75 0.52 0.81

0.70 0.48 0.67 0.94 0.91 0.47 0.57 0.64 0.87 0.74 0.66 0.82 0.57 0.62 0.50

1.30 1.54 0.93 1.06 1.59* 0.84 0.76 0.55

1.37 1.62 0.90 1.03 0.95 0.76 0.74 0.59

1.35 1.51 0.83 0.93 1.17 0.71 0.64 0.65

1.21 1.34 0.76 0.85 1.19 0.64 0.52

Source: Allen, ‘The great divergence’, 428; Allen, European wages and prices; Appendix III. Note: * signifies that less than 10 entries were available for the respective period.

Table 3.10

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Welfare ratios of labourers in northern Europe in comparison with the western Netherlands Country

Town

15001524 1.05 1.09

15251549 1.02 1.01 0.80 0.83

15501574 1.33 1.46 0.99 0.80

15751599 1.14 1.01 0.63 0.63

16001624 1.11 0.81 0.56 0.62

Belgium England Sweden Poland Denmark Germany

Antwerp London Stockholm Gdansk Copenhagen Augsburg 0.73 0.64 0.83 0.59 0.34 Leipzig 0.57 0.40 0.41 Strasbourg 0.94 0.91 0.89 0.56 0.58

16251649 0.92 0.94 0.68 0.82

16501674 0.93 1.02 0.61 0.78

16751699 0.86 0.95 0.63 0.71

17001724 0.85 1.01 0.61 0.70 1.12* 0.54 0.71 0.60 0.55 0.51 0.66 0.49 0.51 0.46 0.48 0.33 0.36

17251749 0.88 1.03 0.58 0.66 0.61 0.48 0.47 0.37

17501774 0.91 1.02 0.57 0.63 0.79 0.47 0.44 0.44

Source: Allen, ‘The great divergence’, 428; Allen, European wages and prices; Appendix III. Note: * signifies that less than 10 entries were available for the respective period.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

17751799 0.90 1.00 0.56 0.63 0.89 0.48 0.37

Labour markets and wage convergence  |  77

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Although data for the less-developed parts of the North Sea region were not as widely available as for the developed parts of the region, the contours of the topic that this chapter wished to analyse were clear. Firstly, it is obvious that silver wages in the developed parts of the North Sea region – Antwerp, the western Netherlands and London – were not fully representative of wage levels in northern Europe in general. This is an important consideration that should particularly be taken into account in those discussions that frequently take the western Netherlands or London to be representative of the whole of north-western Europe.34 Secondly, although swings in relative wages could be documented for some regions (e.g. Belgium), a structural improvement of the economic position relative to the western Netherlands was only achieved in England and Scotland. For England this finding was not very surprising since it is well-known that England eventually overtook the Netherlands as the economic leader in the region. The development of the Scottish economy – to the present author at least – was less expected a priori. It is clear though, that in neither case was migration to the Netherlands responsible for the process observed above. Emigration from England was not of much importance and Scottish migrants focused on other regions instead of the Republic.35 Thirdly, for those regions in which an improving relative position might have been expected due to migration to the Netherlands (e.g. Norway and western Germany), insufficient data were available or it was clear that convergence did not occur. Following these conclusions, this chapter will continue with two casestudies. The first will be of a region that did not send many workers to the Republic, but where significant growth in silver wages occurred during the eighteenth century: Scotland. The second case will be Norway. This country saw many people leave for the Republic in search of work, but despite this wages did not seem to improve, at least not during the eighteenth century. Both studies will try to provide a broader understanding of processes such as migration and domestic economic development.

3.4 Labour market and economy in Scotland As was noted above, Scottish wages performed fairly typically when compared with wages in the Netherlands. In order to be able to elaborate on this in more detail, it is important to have a good understanding of the development of wage levels in Scotland. Instead of relying on the averages for

34 See, for example, Broadberry and Gupta, ‘Great divergence’; Allen, ‘Europe and Asia’; and Allen, ‘Explaining’. 35 Van Lottum, Across the North Sea, Appendix I.

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78  |  The economic consequences of the Dutch

25-year periods, Figure 3.2 presents the annual wage ratios for the town of Edinburgh.36 In this way the spectacular increase in silver wages that took place from about 1760 onwards is much clearer. During the eighteenth century the Scottish economy was able to close the gap that existed between them and the western Netherlands. During the late 1790s Scottish silver wages even exceeded those paid in the western Netherlands. Within the wider north-western European perspective, this was quite exceptional. When wheat wages were taken into account (see Table 3.8), however, it became clear that little or no progress was actually made.37 The combined evidence suggests that the demand for Scottish labour increased rapidly during the second half of the eighteenth century, but that the resulting increase in silver wages was paralleled by a similar increase in grain prices. Was migration to the Netherlands responsible for the observed convergence of silver wages or were endogenous processes responsible for this? And how should the increase in grain prices be explained? This section will start by investigating the demand for Scottish labour and will then establish the role that endogenous processes may have played. Among the many foreigners that went to the Netherlands during the early modern period there were obviously also Scots. Some Scottish sailors, for example, were found on the Dutch fleet. Scottish merchants were present in the towns of Veere and Rotterdam and Scottish students attended Leiden University.38 However, studies on the history of labour migration make it quite clear that the Dutch labour market did not exert a significant pull on Scottish workers. Scottish migration was directed primarily towards Ireland, England and across the Atlantic. Scotland did not therefore belong to the principal recruitment area of the Dutch labour market.39 Assuming a causal relationship between migration to the Netherlands and the increase in Scottish wages is therefore implausible. Furthermore, it remains to be seen whether migration was at all responsible for any of the increases in Scottish wages. In order to understand this, it is important to realise that the impact of migration on a sending region was not only determined by the number of migrants but also by the size of the region’s total population. Emigrant

36 The data collected by Gibson and Smout, Prices, food and wages, show that this phenomenon was not restricted to Edinburgh alone, but could also be found in Gordon, Drylaw, Buchanan and Panmure. 37 Figure 3.2 does not include the wheat wage ratio because price data for Edinburgh were lacking after 1780. Since such wheat prices were available for Aberdeen it was possible to establish that prices in both towns moved in tandem. As Aberdeen wheat prices were on an upward trend, it was assumed that this also was the case for Edinburgh prices. It was this upward trend that levelled off the increase in silver wages. 38 Simpson, Scotland and the Low Countries; Catterall, Community without borders; Gardner, Scottish exile community; Grosjean and Murdoch, Scottish communities abroad. 39 Van Lottum, Across the North Sea, 26-27.

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Labour markets and wage convergence  |  79

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stock rates are a good instrument to measure this impact since they relate the number of foreign residents of a country to the population size of their native country. By converting this figure to one that provides the number of individuals in a foreign country per 1,000 people at home, a measure can be constructed that can easily be compared through time and also to the emigrant stock rates of other countries. The emigrant stock rates of Scotland, which Van Lottum provides for six benchmark years, were much higher during the seventeenth century than during the eighteenth century. Van Lottum estimated values of 89, 112 and 96 for 1600, 1650 and 1700 respectively. Around 1750 and 1800 this was only 11 and 12.40 Since silver wages did not change much during the seventeenth century and wage ratios remained stable or at most only improved slightly, it is highly unlikely that the much lower emigrant stock rates of the eighteenth century could have brought about the rapidly improving relative position of Scottish silver wages after 1760. In addition it should be noted that emigrant stock rates were based on the whole of Scotland and that the wages discussed mainly represented Lowland towns, despite the possibility that a significant proportion of the migrants may have originated from the Highlands. Information and wage data for this part of Scotland are scant, but research by Morgan and Gibson and Smout suggests that demand for wage labour was limited in the Highlands. Agricultural wages in the Highlands were much lower than in the Lowlands, but then workers received a significant part of their income in the form of food and housing. Whereas in many regions wages started to increase from the mid-eighteenth century onwards, the fragmentary evidence for the Highlands suggests that such an increase was absent there.41 If a large number of migrants did indeed come from the Highlands, there is even less reason for Lowland wages to have increased because of a foreign labour pull. However, it becomes even more noticeable that in economic terms the Highlands lagged behind.

40 Van Lottum, Across the North Sea, 46-48. 41 Morgan, ‘Agricultural wage rates’; Gibson and Smout, Prices, food and wages, 323-333.

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1700

1710

1720

1730

1740

1750

1760

1770

1780

80  |  The economic consequences of the Dutch

Figure 3.2

Silver 3.2

wages in Edinburgh in relation to silver wages in the western Netherlands, 1550-1800 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1550

1600

1650

1700

1750

1800

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Source: See Appendix II.

But why then did Scottish labour not improve its relative position during the seventeenth century and why did Highland wages not increase during the eighteenth century? The specific demographic situation in seventeenthcentury Scotland has commonly been held responsible for the absence of a more noticeable increase in wages.42 The crude rate of natural increase (the difference between births and deaths expressed per 1,000 of the population) was so high – especially during the seventeenth century – that the pressure on the means of subsistence was high. This demographic pressure created a large pool of unemployed and under-employed workers for whom migration was an attractive strategy to improve one’s standard of living. In economic terms this meant that workers did not have much bargaining power within Scotland with regards to wages as there were always others that were willing to do the work. The relatively high fertility of the Scottish population was thus a check on increasing wages. Because such fertility patterns did not change from one day to the next, the sharply reduced emigrant stock rates of the eighteenth century must imply that Scotland was either able to accommodate many more people in the latter century or that (real) wages were decreasing. Since no evidence of such a fall in wages could be found and since the total population size increased considerably, many more workers must have been able to find jobs inside Scotland than in the previous period. Similarly, high fertility rates were also present in the Highlands, but economic opportunities did not increase as much there during the second half of the eighteenth

42 Van Lottum, Across the North Sea, Chapter 2 note 68.

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century since – as we will see – the growth sectors were located mainly in the Lowlands. An initial indicator of the economic growth and change that took place is the location in which people lived. The available data show that increasing numbers of people lived in towns instead of the countryside. Cities such as Glasgow, Edinburgh, Dundee and Aberdeen saw their populations grow rapidly. Their combined population grew almost threefold from 71,000 in 1700 to 206,000 in 1800.43 Urbanisation rates also increased threefold from 7.4% in 1700 to 11.4% in 1750 and 21.3% in 1800.44 This signifies that an important structural change was taking place in the Scottish economy during the eighteenth century. The new town dwellers were probably active in manufacturing or trade, which meant that a smaller number of farmers had to feed an increasingly large non-food producing urban population. This meant that they had to produce ever larger surpluses. Urbanisation rates are therefore an important indicator of social and economic change.45 Naturally, this economic transformation process has attracted the attention of a great many historians and subsequently many publications are available on this topic. According to this literature, transformations took place in agriculture, manufacturing and international trade.46 The industrial expansion was led by linen: production increased from around 4 million yards around 1730 to about 25 million yards by the end of the century.47 Coal production also grew rapidly. Whatley estimated that the sector had increased output from less than 225,000 tons at the turn of the eighteenth century to two million tons by 1800. The sector had thus grown between eight and ten times in size during the eighteenth century.48 In addition the tobacco industry also became important and, in the words of one author, Glasgow became ‘the tobacco metropolis of western Europe’. In 1724 the town’s merchants imported 4.2 million pounds in weight of tobacco

43 Bairoch, Batou and Chèvre, La population. With a combined population of 69,000 in 1700 and 212,000 in 1800, De Vries, European urbanization, 271, arrives at a slightly higher growth rate. 44 The urbanisation rate was calculated by dividing the population of the towns included in Bairoch, Batou and Chèvre, La population (those towns that at one point in their history had 5,000 or more inhabitants), by the total population size given by McEvedy and Jones, Atlas, 47. 45 De Vries, European urbanization. 46 Devine, Transformation of rural Scotland; Whatley, The industrial revolution; Whatley, Scottish society; Devine, ‘Scotland and the Act of the Union’; Devine, ‘Industrialisation’; Devine, ‘Transformation of agriculture’; Lee, ‘Establishment of the financial network’; Lee, ‘Economic progress’. 47 Durie, Scottish linen industry, 23. 48 Whatley, ‘New light’, 4, 7.

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which by the early 1770s had increased to about 46 million pounds.49 The developing markets of England, Ireland and the Atlantic increasingly absorbed these and other Scottish goods. The growth of these sectors obviously required huge amounts of labour for production, mining and loading and unloading ships. It does not come as a surprise, therefore, that competition for labour increased during the eighteenth century and that silver wages increased as a result.50 It should be remembered, however, that the growth of these non-food sectors depended to a great extent on the surpluses that were generated within agriculture. Changes in Scottish agriculture enabled the growing part of the population who were working in non-agricultural sectors to be fed. Experts on this topic attribute the growth in agriculture to organisational changes (such as enlarged single written tenancies, longer leases and a shift to rents paid in money instead of in kind) and to an increase in yields. Average oat yields, for example, tripled between the late seventeenth century and the 1790s.51 It is apparent, however, that productivity in agriculture was narrowly able to keep up with demand and productivity in other sectors. As a result grain prices increased at the same rate as construction workers’ wages. The outcome was that grain wages did not increase much and that a convergence to levels common in the western Netherlands was absent. To sum up, the Scottish case shows that labour migration to the Netherlands – or labour migration as a whole for that matter – did not lead to important changes in silver or grain wage levels. During the seventeenth century, when emigrant stock rates were at their highest, a large labour surplus prevented wages from increasing. During the second half of the eighteenth century silver wages did increase rapidly and it has been shown that this was the result of domestic economic development and a fundamental transformation of the Scottish economy itself. As a consequence Scottish silver wages converged to levels common in the western Netherlands. In real terms, however, progress was less marked. This was caused by the fact that the price of grain also increased rapidly meaning that in real terms workers did not gain much. In comparison with the grain wages in the western Netherlands, the Scots continued to lag behind. Endogenous economic developments as described here also took place in other areas around the North Sea. The ascendance of northern England as an industrial region is a clear

49 Devine, ‘Scotland and the Act of the Union’, 29; Hamilton, The Industrial Revolution, 5, 120-121. 50 Whatley, ‘New light’, describes this process for the coal industry. 51 Devine, ‘Transformation of agriculture’, 81.

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Labour markets and wage convergence  |  83

example of this.52 In this respect the Scottish case is representative of the rise of a wider group of regions.

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3.5 Labour market and economy in Norway Just like the Scots, the Norwegians were a mobile people and their emigrant stock rates were among the highest in the North Sea region. In contrast to Scottish migrants, however, Norwegians mainly went to the Netherlands when migrating.53 Therefore it is possible that the pull of the Dutch labour market can be observed better in Norway than in Scotland. However, this did not turn out to be the case. In section 3.3 it has been shown that Norwegian silver and grain wages did not or only very slightly converge to Dutch wage levels. Unfortunately, however, there was very little wage evidence to elaborate upon. The data that are available are restricted to the eighteenth century, whereas Norwegian migration to the Netherlands was at its highest during the seventeenth century.54 This raises the question of whether money wages played any role in the Norwegian economy at all and thus whether there actually were wages that could converge with Dutch payment standards. The lack of wage data should most likely be attributed to the simple fact that prior to the mid-nineteenth century wage labour was not of much importance. Minde and Ramstad stated, for example, that households whose income was ‘wholly or largely determined by the size of an annual wage paid in cash were numerically speaking marginal’.55 Grytten added to this when he highlighted that the censuses of 1801 and 1815 documented that more than 90% of the population lived in rural areas, and mostly on small farms.56 If urbanisation rates could be used as a proxy for the spread of wage labour, the pre-1800 picture does not improve much (see Table 3.11). If it is taken into account that most of the town dwellers lived in just three cities (Bergen, Trondheim or Christiania), it is unlikely that full-time wage labour was of much importance in Norway during the early modern period.

52 See Botham, ‘Working-class living standards’; Hunt, ‘Wages’; Hunt, ‘Industrialization and regional inequality’; and Botham and Hunt, ‘Wages in Britain’, for wages and industrialisation in northern England. 53 Van Lottum, Across the North Sea, 36. 54 According to Minde and Ramstad, ‘Real wages in Norway’, 90, and more recently Grytten, ‘The economic history of Norway’, pre-1800 wages are only available in two Norwegian publications. The present study has only been able to consult Fløystad, ‘Arbeidsmandens lod’. Unfortunately it was not possible to consult Larsen, ‘Rørosarbeidernes levestandard’, and Larsen, ‘Levestandard på 1700-tallet’. 55 Minde and Ramstad, ‘Real wages in Norway’, 90. 56 Grytten, ‘The economic history of Norway’.

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84  |  The economic consequences of the Dutch

Table 3.11

Urbanisation rates in Norway, 1500-1800 Year 1500 1600 1700 1800

Norway 2.0% 2.8% 4.5% 7.0%

3 large towns 2.0% 2.6% 3.2% 4.0%

Source: The urbanisation rate was calculated by dividing the population of the towns included in Bairoch, Batou and Chèvre, La population (those towns that at one point in their history had

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5,000 or more inhabitants), by the total population size given by McEvedy and Jones, Atlas, 53.

This does not take into account, however, that at some point during the year many Norwegians performed wage labour in addition to subsistence farming or fishing. The Norwegian merchant fleet and iron works, for example, needed workers, as did the timber industry. With respect to the timber industry – which was probably one of the most important sectors in which wage labour was performed – an estimate may illustrate the extent to which wage labourers were required. As will be discussed in more detail in Chapter 7, Christiania’s hinterland produced about 1.2 million deals (a type of sawn timber) in 1705 and 1.5 million deals in 1740. One particular company, for which information on production size and labour input has survived, employed 26 sawmillers who together produced 128,000 deals per year. Combining these figures shows that in these years Christiania’s hinterland would have needed 244 and 305 workers respectively to man its sawmills.57 As Christiania was not the only exporter of deals, similar work was also performed in other parts of the country. Export figures for the year 1699 show that Christiania was responsible for about one-fifth to one-quarter of the total exports.58 This would mean that between 975 and 1,219 workers would be needed in the whole of Norway. Additional labourers were also required for chopping down the trees, driving logs to the sawmills and transporting the deals to port. But because work in the timber industry depended on the availability of snow and water for transportation and processing, the sector could only offer seasonal employment. The impact of wage labour in the timber industry, and with it other sectors as well, on the total Norwegian population – numbering about 600,000 around the year 1700 – must have been limited during the early modern period. Thus the wage economy was considerably dispersed over the countryside and for many wage labour only functioned as a form of by-employment when 57 Holmsen, Linderud, I, 108-114. 58 Tveite, Trelasthandel, Appendix B.

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Labour markets and wage convergence  |  85

work in agriculture was slack. This may have hindered the emergence of a more formalised labour market and as a consequence wage formation may also have been a less straightforward process when compared with regions where wage labour was more important. This may have made the possible impact of the Dutch labour pull a more complex process and more difficult to observe, if it was present at all. It should be taken into account, however, that Norwegian migrants predominantly came from specific regions; especially from the southern part of the country.59 Here the period of Dutch influence came to be known as the Hollender-period. The obvious consequence of this could be that the effect of the Dutch pull was felt more intensely there than in Norway as a whole. Although there is little evidence against which to check how representative the Norwegian wage data are, Fløystad believes that they are representative for south-eastern Norway. Research by the Norwegian government in 1778 showed, for example, that the Baaseland ironworks belonged to a group of iron companies that paid similar wages. According to Fløystad, labour migration and the proximity to other ironworks created a more or less integrated labour market in this part of the country.60 Although the immediate vicinity of Baaseland was not one of the core migrant-sending regions, a considerable number of migrants from the area did find work in the Netherlands. Therefore it would not be odd for migration to have had an impact on wage formation in Baaseland. That said, two questions must thus be raised. Firstly, why was convergence limited or even absent during the eighteenth century? And secondly, is there any reason to assume that the situation during the seventeenth century was different? As was the case with Scotland, the answer to both questions can, to a large extent, be found in demography. When a closer look is taken at the assumptions underlying the factor price equalisation theorem, it becomes clear that a crucial prerequisite for wage convergence is that labour in the sending region must be fully employed.61 In such a situation the migration of just a single labourer would exert upward pressure on wages. If, however, the population was not fully employed, there would be many others to take the place of the migrant and competition among the potential labourers would then prevent the wage level from rising. There is substantial evidence that suggests that the Norwegian population as a whole was indeed under-employed during the seventeenth and eighteenth centuries. The persistently high crude rates of natural increase that have been constructed for Norway show that from the labour-supply side there was a large surplus. Combined with the fact that return migration – especially during the eighteenth century – also played a 59 Sogner, ‘Norwegian-Dutch migrant relations’, 46. 60 Fløystad, ‘Arbeidsmandens lod’, 144-148. 61 See, for example, Pugel, International economics, 68 note 2.

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role, it is clear that labour was never in short supply in Norway. Consequently, there was little reason for wages to increase due to migration.62 As with the Scottish case, this shows that the organisation and size of labour supplies in peripheral regions is very important for understanding why wages did not converge. But then how much movement was actually needed for wages to converge? The answer is complicated because it involves the interplay between emigrant stock rates and unemployment/under-employment levels in the labour-sending regions. Even with high emigrant stock rates, there might still be a lot of people searching for jobs. In such a situation the factor price equalisation theorem would suggest that migration would not yet be able to influence wage levels in the labour-sending region. Quite similarly a situation could be imagined in which unemployment/under-employment figures were low and the migration of a relatively modest number of labourers would exert increased pressure on wages. A straightforward relationship between emigrant stock rates and wage levels is thus difficult to formulate.63 In the labour-receiving region – the Netherlands in the present case – the relationship between migration and wage levels is also difficult to formulate because a counterfactual analysis would be required to undo the historical reality of migration. In other words, since the exact relationship between the demand and supply curves of labour is uncertain, it is impossible for the historian to determine the extent to which the supply of foreign labour alleviated the upward pressure on wages. Had such information been available, however, the high wage levels would probably still have triggered a widespread introduction of labour-saving techniques.64 Such processes would have been even more difficult to capture in a formal model. However, it is probably correct to assume that the sheer number of migrants would have had at least some effect on the Dutch labour market. It has been shown above that between 1600 and 1800, 12% to 18% of Holland’s population was born abroad and two-thirds of the (day)labourers and four-fifths of the hodmen were of foreign origin. Had Dutch employers been unable to tap into this additional supply of labour, their demand for workers would have increased competition for the services of native workers. Such a process would undoubtedly have driven up wages even further than they already were.

62 The possibility should be left open, however, that in some regions trade may have been responsible for rising wages. Løberg, ‘En tidligkapitalisk skogbruksrevolusjon’, showed, for example, that in the Trysil region the timber trade was responsible for the growth of GDP. It is not clear, though, what the effect on wages was. 63 It should be noted that in a nearly full-employment situation, the still-unemployed workers may not possess the skills required by the employer. This might result in increased competition and higher wages for workers who do possess the necessary skills. 64 The case of Dutch sawmilling is described in detail in Chapters 6 and 7.

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The observer is thus confronted with a labour-receiving country where the effect that migration had on wage formation is almost impossible to quantify on the one hand, and labour-sending regions with high levels of unemployment/ under-employment which prevented migration from increasing wage levels on the other. All of this does not mean, however, that migration to the Netherlands did not have any effect. There are some very real, some even clearly measurable, social and economic consequences that should be pointed out here.65 In terms of population growth, for example, the population size increased much more slowly in migrant-sending regions than in non-sending regions. Moreover, the age structure in migrant-sending regions was also affected as men of working age formed a smaller group than would be expected under normal circumstances.66 Such changes must have had an impact on everyday life in the more important migrant-sending regions in Norway. The fact that wages did not increase does not therefore tell the whole story. This becomes even clearer when one looks at living standards instead of wages, since we have to be aware of the fact that Dutch wages could also exert their impact on these in another way. Norwegians often found employment in Holland’s maritime sector. Those who mustered on the ships of the Dutch merchant marine, East India Company or Navy received food, lodging and a financial remuneration. The fact that many of them did not spend all their financial compensation meant that they could take a certain amount of money home when they returned to their respective home countries. For Dutch sailors how this worked has been documented in detail and Norwegian historian Sætra has claimed that Norwegians were also able to return with some money or send money back home.67 Having access to such cash clearly must have improved the living standards of those who stayed at home. Therefore, even in those regions where wage levels were unaffected by migration to the Netherlands, the influence of the flourishing Dutch economy was present.

3.6 Conclusion The growth of the Dutch economy during the early modern period led to the rise of an international labour market. This chapter studied whether labour

65 Obviously, there also were forms of Dutch cultural influence. It is difficult, however, to determine to what extent migration or trade were responsible for this. For some examples, see Sogner, ‘Popular contacts’. 66 Van Lottum, Across the North Sea, Chapter 2. 67 Van den Heuvel, ‘Bij uijtlandigheijt van haar man’; Sætra, ‘Markedsøkonomi’, 74; Van Lottum, Across the North Sea, 176.

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88  |  The economic consequences of the Dutch

migration to the Netherlands also meant that foreign wage levels converged to levels of pay common in the western Netherlands. In this the factor price equalisation theorem was followed. Wage convergence, however, was only found in particular cases and migration does not seem to have been the driving force there. The wage convergence that was observed was instead caused by endogenous growth processes. Section 3.4 elaborated on one particular case in which such growth was observed, namely the Scottish economy. The rise of some industrial sectors and growth in trade – both of which were facilitated by agricultural improvements – increased the demand for labour and this eventually enabled Scotland to surpass the silver wages paid in the Netherlands by the end of the eighteenth century. This growth process was accompanied by a fundamental change of the location of production as people increasingly lived and worked in towns. It is likely that the Scottish example was representative of growth in other regions such as northern England as well. Throughout sections 3.4 and 3.5 attention has been paid to the question of why migration did not lead to wage convergence. Although more evidence for the migrant-sending regions could certainly be wished for, some explanations of the absence of convergence may still be given. Principally, the wage economy was limited, the size of the early modern migration flows was too small and workers in the labour-sending regions never became fully employed due to population surpluses. This meant that the migration of a relatively small number of workers did not result in a fundamentally new situation with regards to the supply and demand conditions of labour. The fact that return migration was of increasing importance during the eighteenth century would not have helped in this respect either. The abundance of labour simply continued to exist. The fact that wage convergence was not found for more North Sea countries does not mean, however, that labour migration was of no importance. With respect to Norway it can be seen that on a regional level a significant impact was made on the age distribution of the population. The cohorts of young men were relatively underrepresented. This must have influenced the social and economic functioning of these regions. In addition, the money that was sent home or migrants who returned with savings must have raised the standard of living. In addition, social and cultural habits were copied. In the Netherlands the presence of a large number of foreign labourers exerted a downward pressure on the rising Dutch wages. This impact must remain unquantified though, since it is impossible to determine how much wages would have increased in the absence of these foreign labourers. The fact that so many migrants flocked to the Republic meant that ships were manned, soldiers were available for the army, goods were carried in the ports, enough labour was available in the construction industry, bread was baked and shoes

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repaired. The growth and development of the international labour market and the migration that it involved thus had a clear impact on the Dutch economy and the other economies surrounding the North Sea. The fact that this process was not paralleled by wage convergence should be attributed to some of the assumptions underlying the factor price equalisation theorem. It does not nullify the fundamental economic importance of the rise of an international labour market and migration to the Netherlands.

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4  | The integration of DenmarkNorway in the Dutch capital market

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4.1 Introduction In the previous two chapters we have looked at the goods and labour markets. It has become clear that strong ties existed between the various North Sea regions. The obvious question now is whether such relations also existed in the market for capital. For reasons similar to those of Chapters 2 and 3, the Dutch Republic will again be taken as point of reference. As its Golden Age progressed, growing amounts of capital accumulated in Dutch hands and when opportunities and returns started to decrease domestically, these funds were increasingly channelled abroad. During the seventeenth and eighteenth centuries, the Dutch thus became the most important international credit suppliers in northern Europe. Having access to this supply of relatively cheap Dutch capital could potentially be of great importance as it could increase the productivity of labour by lowering the relative price of



De Vries and Van der Woude, The first modern economy, 81-158; De Goey, ‘Dutch overseas investments’.

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The integration of Denmark-Norway in the Dutch capital market  |  91

capital and help to finance government policy. Measuring the size, direction and timing of these Dutch foreign investments and establishing their impact is therefore of much relevance to the main research question. Dutch investment in England has traditionally received much attention since the English were their largest debtors and because these investments started relatively early, from around 1700. As this case has already received a good deal of attention in the literature, this chapter will focus on Dutch investment in a part of the North Sea region that has been studied far less: Denmark-Norway. Studying this country has the advantage of broadening our knowledge about the whole spectrum of capital market development. Riley’s standard work on the rise of Amsterdam as a credit supplier to foreign governments during the period 1740-1815 claimed that no credits were provided to this country prior to the mid-eighteenth century and that the interest rates charged on the post-1750 credits were low compared to the rates paid by ‘good’ debtors. However, this chapter will document how DenmarkNorway – both its merchants and its government – was increasingly incorporated into the network of the Dutch capital market from as early as the late sixteenth century onwards. Looking at interest rates it can be shown that Dutch creditors did in fact distinguish between the various Dano-Norwegian debtors. This implies that Dutch creditors must have had a reason for charging modest interest rates to the Dano-Norwegian government. Access to increasingly cheap Dutch capital, more disciplined behaviour from the Danish monarchs, the use of more advanced financial techniques on the part of the Danes and a reduction in the transaction costs of Dutch creditors had already significantly reduced interest rates from the late sixteenth century onwards. This suggests that the post-1750 interest rates – at least those charged to the Danish debtors – were not as unrealistically low as has been suggested. Besides showing that the chronological and geographical scope of the Dutch capital market was already wider earlier than previously thought, this chapter will deepen our understanding of the evolution of international capital markets and of the conditions under which less-developed economies could be incorporated into this market.

 As far as the present author could discover, no Danish or English legislation on borrowing capital abroad existed. The Dutch authorities did introduce restrictions on lending to foreign governments, but these were only directed towards preventing one specific loan to the Danish King in 1700. See Elias, De vroedschap, II, 890.  The classic studies are Wilson, Anglo-Dutch commerce and finance; Dickson, The financial revolution; Carter, Getting, spending and investing; Riley, International government finance; Neal, Rise of financial capitalism.  Chapter 5 will make a comparison between Dutch investment in Denmark-Norway and in England.  Riley, International government finance, 47-48, 85.

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92  |  The economic consequences of the Dutch

This chapter will proceed as follows. Sections 4.2 and 4.3 will introduce and discuss the historical data. The former will discuss Dutch credit that was extended to Dano-Norwegian private and semi-private companies. The latter will then present the evidence for the Dano-Norwegian Kings. It will be shown that both groups were increasingly incorporated into the Dutch capital market. In addition, for the Danish Kings it will also be illustrated that this happened at ever lower rates of interest. Section 4.4 will offer some theoretical considerations on this process of decreasing capital costs. It will pay particular attention to the literature that addresses the question of how governments could reduce the interest rates that they were charged. Sections 4.5 and 4.6 will then turn to developments on the creditor and debtor sides respectively in order to explain this decreasing trend. Section 4.7 will summarize and conclude.

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4.2 Danish private and semi-private companies and the Dutch capital market As the above title suggests, this section discerns between the private and semi-private companies in Denmark-Norway. The difference between the two is that the latter often received some form of formal government support such as monopoly power. The Danish Asiatic Company is a good example of this. Based on the literature and an inspection of the card index of Amsterdam’s notarial archive, a recovery of as much evidence as possible about Dutch credit has been attempted. It should therefore be taken into account that this section will only be able to present some of the credit that was actually extended to Denmark-Norway. This was especially the case with respect to private companies since private contracting made business dealings quite intangible and it is therefore almost impossible to present a complete picture here. We can explore the issue, though, by collecting some of the scattered evidence and by focussing on merchants from the towns of Copenhagen, Trondheim and Christiania (Oslo), which have been studied relatively closely. From the available evidence on financial transactions it appears that at the close of the sixteenth century the Norwegian and Dutch markets were not very well integrated. The transactions of foreign merchants in Norway, for example, were paid for in cash instead of by bills of exchange. This cash

 An alternative strategy would be to look at the balance of trade and assume that all trade took place on credit. Unfortunately the available evidence is fragmentary and does not allow for such an approach. See Jonker and Sluyterman, Thuis op de wereldmarkt, 62, 81, 118, for an overview and discussion of the data.

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The integration of Denmark-Norway in the Dutch capital market  |  93

could be acquired by selling goods in Norway (e.g. salt) or by bringing it from Holland. Gradually, however, the bill of exchange was used more often and goods such as timber, copper and fish were traded in exchange for bills on Amsterdam or London. The bill of exchange that was provided by the buyer of the goods stated the amount, location and time of the actual payment. Because the seller would not get his money immediately, he was in fact providing a small amount of credit to the buyer of his goods. Norwegian historian Stein Tveite believes that the wider use of bills of exchange in the Norwegian economy took place between 1630 and 1670 and in the case of the timber trade this was probably related to the rise of a merchant elite in Norway. Initially, skippers could purchase timber everywhere along the coast from peasants, but paying those peasants with bills was not possible. As the coastal forests gradually became depleted, the timber trade was increasingly concentrated in those towns that were located at the mouths of rivers. As it became more complicated and expensive to transport the timber from inland forests to the ports, a group of wealthy merchants began to dominate the trade. These merchants were in a position to accept bills of exchange because they could use them to pay each other, to pay their taxes to the King in Copenhagen and to purchase goods from abroad. As Denmark ran a trade deficit with the core economies, the bills were eventually sent back to Amsterdam and London to settle the balances there. Risky shipments of bullion – both from the Netherlands to Norway as well as from Norway to other destinations – largely became unnecessary and financial transactions between the two regions then became much easier. Whereas it was one thing for Norwegian merchants to accept bills of exchange as payment, having the opportunity to actively draw credit themselves on Amsterdam or London was another. This meant that the Norwegian merchant owed the Amsterdam merchant money. When compared to the bill of exchange, the credit relationship was now the other way around since it was the Amsterdam merchant that was receiving interest. Being able to draw credit on an Amsterdam merchant thus implied that Norwegian merchants could make use of the credit facilities offered by the Dutch capital market. As will be shown, however, entrance to this credit market required the promise of regular future deliveries of goods and it was subject to certain rules of conduct. Although evidence has primarily been collected from studies of Trondheim merchant families, the situation in Bergen or Christiania probably was not fundamentally different. Two cases found in the Amsterdam mu-

 Neal, Rise of financial capitalism, 5-9.  Schreiner, Nederland og Norge, 42-43; Tveite, Trelasthandel; Smout, ‘The Scottish perspective’, 41. Note that this process was thus facilitated by the burgeoning demand for timber that existed in the Netherlands.

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94  |  The economic consequences of the Dutch

nicipal archive may illustrate the fact that credit relations also existed with these towns. In 1636 the three Van Wicke brothers authorised Dirck Verster, living in Bergen, to collect their claims there. And on 17 September 1664 Hans Torgiersen Veszbij from Christiania stated that he owed Daniel Pinto the sum of 1,360 guilders for tobacco Pinto had supplied. Veszbij could pay without extra costs within seven months or pay a monthly interest of 5% after that. Credit transactions could involve quite considerable amounts of money. In April 1667, for example, Copenhagen merchant Henrik Müller borrowed 80,000 rigsdaler – or 200,000 guilders – from Amsterdam merchant Juan Nunes Henricques. The amount was to be provided to Emmanuel Texeira in Hamburg in four payments: 10,000 rd (late April), 20,000 rd (June), 10,000 rd (August) and 40,000 rd (December). To this were added two other claims of 57,680 rd and 14,375 rd, so Müller owed Henricques a total of 152,055 rd (c. 380,000 guilders). It had already been agreed that Müller would pay off 12,000 rd in 1667 and that five yearly instalments of 28,000 rd would follow. The interest rate was to be 6%, but transaction costs could be added to this. Müller was to pay through copper deliveries to Amsterdam or Hamburg (Simon Nunes Henricques or Simon Soares) and all his current and future possessions were pledged as collateral. His son, Frantz Müller, and his son-in-law, Thomas Fincke, vouched for him.10 Ten years later (1677) Frantz Müller – who was in Amsterdam at that time doing business of his own – provided the heirs of Henricques with an obligation worth 42,600 rd, which he promised to pay within a month of his arrival in Copenhagen. He left property in Amsterdam as collateral and agreed to pay a monthly interest of ½%.11 Copper also played a central role in the loan that was provided for Joachim Irgens in 1670. Amsterdam merchant Schardinell lent him 100,000 guilders, and a Norwegian copper mine and the Gjorslev estate were given as a pledge.12 So far only loans have been discussed, but merchants could of course also draw credit from Amsterdam merchants. During the late seventeenth century Lorentz Angell Mortensen owed Jacob Low in Amsterdam an unspecified amount of money, which would be repaid in copper and fish. When the returns fell short, Low went to court and in 1688 it was determined that Mortensen had to repay in cash and not in shares of his ironworks, as

 Amsterdam municipal archive, Notarial archive (5075), inv. no. 2217, act 17 September 1664; inv. no. 793, act 18 August 1636. 10 Jørgensen, Rentemester Henrik Müller, 162-163. 11 Jørgensen, Rentemester Henrik Müller, 202-203. 12 Wad, ‘Irgens’. Note that Bricka, Dansk biografisk lexikon – of which this and other lemmas used in this book are a part – is available online.

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The integration of Denmark-Norway in the Dutch capital market  |  95

Mortensen had preferred. The case was eventually settled when Lorentz Abo, one of Mortensen’s relatives in Amsterdam, took over the debt from Low. This case highlights that not all goods were suitable as collateral. Preserved fish and copper could easily be sold in Amsterdam, but with shares in ironworks this was probably much more difficult. Distance and a small market may have made it complicated to verify the value of ownership rights in Norwegian estates or industries, as well as difficult to dispose of them.13 Albert Angell – the son of Mortensen – also borrowed on the Amsterdam capital market on the promise of future copper deliveries. His contact was Ole Horneman, a merchant of Trondheim descent. In turn, Ole Horneman was commissioner for his father Henrik and brother Hans who resided in Trondheim and who sent their fish and copper to Amsterdam. After Ole’s death in 1713 father and son continued to do business with his widow for some time, but while settling Ole’s estate they came into contact with the Danish firm of Laasbye & Nieugaard. However, Hans Horneman came into conflict with them and contact between the two houses stopped in 1732. He also broke with the company of Ellart de Weer de Witt during the 1730s, and from the mid-1730s onwards the firm of Daniel Wesling became his most important contact in Amsterdam. But again – during the mid-1740s – Hans clashed with his creditor. Wesling did not want to expand the already considerable credit of Horneman because he was afraid that he would not be refunded when Horneman died. As Horneman was born in 1688 he was in his mid-fifties when doing business, so Wesling’s fear of him passing away was not unfounded. This might suggest that settling estates with merchants residing in Norway could be problematic. Apparently Hans Horneman was very successful in finding new creditors, because the company of the Widow Jan Moor de Jonge then took over as his main commissioner.14 The foregoing examples show that the Dutch creditor’s perception of a foreign merchant’s creditworthiness was of crucial importance. It was for this reason that Herman Hoë, after he had finished his apprenticeship in 1773, included a letter of recommendation from his former employer stating that he was trustworthy in the letters that he sent to foreign merchants asking

13 Members of the Danish Abo family had settled in Amsterdam as merchants and were consul and commissioner for the Danish King. They seem to have been able to marry into respectable Dutch families. The Abos were thus a family of considerable importance both within Denmark-Norway and Holland. See Kernkamp, Verslag, 236-237; Elias, De vroedschap, I, 503-504, 542-543, and II, 646-647; and Bull, Trondhjemske handelshusene, 75, 250, 315. Much genealogical information, highlighting the (family) relationships between the various families of Dano-Norwegian origin, can be found on the website of the Amsterdam municipal archive, which has made the Amsterdam baptismal registers available online. See Amsterdam municipal archive, Doopregisters. 14 Bull, Trondhjemske handelshusene, 245-246, 251-252. See Sprauten, ‘Hans Hornemanns sagbruk’, and Sprauten, Hans Horneman og næringslivet, for the Horneman family.

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96  |  The economic consequences of the Dutch

them to start doing business with him and provide him with credit. Another eighteenth-century Trondheim merchant, Christian Lorck, also sent letters to guarantee that he was a person deserving credit, but he also made an introductory tour to Copenhagen, Flensburg, Hamburg and Amsterdam in order to make a case for himself. Another opportunity to extend one’s own network was to use the network the family had already established. Hans Horneman, for example, could have become familiar with the Amsterdam merchants and established a reputation of his own with them while receiving his training at the house of his brother Ole. In order to fully take over his father’s network, Hans also made a tour visiting some important trading centres and establishing personal relationships with the people in his father’s network. Later on his sons also made such a tour. The fact that a merchant’s reputation was best known within his own circle may – assuming that it was a good reputation of course – explain why Dano-Norwegian merchants initially seem to have depended mainly on their countrymen. As one grew more familiar with other Amsterdam merchants, the family network became less important and its role was gradually taken over by other resident merchants. Reaching credit agreements, however, would always have required the establishment and continuous confirmation of one’s trustworthiness. The promise of future deliveries of goods such as fish, copper and timber, which found a ready market in the Netherlands, could be used in order to get access to credit facilities in Holland but eventually one had to come up with regular shipments of these goods.15 Information on the debts of two Norwegian merchants may shed some light on the process of expanding credit relations. When in 1697 an estate was settled, Mogens Lauritzøn, a timber merchant from Christiania whom we will meet again in Chapter 7, owed a total of 4,861 rd to his creditors (see Table 4.1). The Dutch creditors were Mathias Rees from Dordrecht and two merchants from Amsterdam, Abraham Italiander and Marchus Levi. The debt with Rees (260 rd) had originated shortly before 1697 when his son, Lars Mogensøn, had been to Holland for a study trip of one and a half years. It appears that Lauritzøn had also bought goods such as corn, salt and tobacco on credit. Future deliveries of timber – data for 1689 and 1705 show that in both years Lauritzøn was the second largest timber producer in Christiania – probably functioned as the collateral for this credit.16 There is also data from 1791 regarding Trondheim merchant Herman Hoë who, after losing a ship with its cargo, could no longer repay his debts. His debts seem to have accumulated since February 1776 and his accounts show that he had a total debt of 67,631 rigsdaler, of which claims to the value 15 Bull, ‘Merchant households’, 224. 16 Holmsen, Linderud, I, 63, 68, 80-81, 88, 124, 141-142, 209, 416.

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The integration of Denmark-Norway in the Dutch capital market  |  97

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of 6,304 rigsdaler had priority. As his debtors owed him 19,800 rigsdaler, Hoë thus only had 13,496 rigsdaler left to cover the remaining debt of 61,327 rigsdaler. In other words, a mere 22% of the outstanding debt could be repaid. His creditors decided to settle with him and the data from this settlement shows who these creditors were and where they came from. Overall 69 credits were mentioned, five with priority and 64 without priority. Only in 22 cases was a place name mentioned and given the fact that even relatively close towns such as Molde and Christiansund were mentioned explicitly, it can be assumed that the other 47 loans were provided by people in or very near to Trondheim.17 The Dutch creditors were Jan Hooft from Dordrecht (123 rigsdaler) and Doekscheer & Steenbergen (372 rigsdaler) and Linsen & Rensselaar & Co. (10,635 rigsdaler) from Amsterdam. The latter firm was the largest foreign creditor.18 Table 4.1 shows that Norwegian and Danish merchants were generally the major creditors but foreign creditors had also been of great importance to Lauritzøn and Hoë. The size of these foreign credits increased considerably over time: Hoë borrowed almost eleven times as much from his foreign creditors as Lauritzøn did.19 Whereas Lauritzøn only had creditors in the Netherlands, Hoë had developed a more diffuse network of creditors. Norwegian historian Bull suggests that around the mid-seventeenth century, the trade and finances of Trondheim merchants gravitated towards Amsterdam.20 This could mean that the pattern we found for Lauritzøn might also have applied to those in Trondheim. On the other hand, it is also well known that the importance of other foreign destinations for the timber trade of Christiania increased from the mid-seventeenth century onwards. This must have been matched by a larger role for other foreign merchants as creditors, which would then result in a more diffuse credit network as we found for Hoë. However, among the foreign creditors, Dutch creditors continued to be the most important.

17 The towns are: Rostock (four); Christiansund (three); Amsterdam and Montrose (two each); Altona, Bergen, Christiansand, Copenhagen, Dordt (Dordrecht), Flensburg, Hull, Itzehoe, London, Molde and Scotland (one each). The assumption was confirmed by professor Ida Bull (personal communication). 18 Bull, Trondhjemske handelshusene, 227, 252-254; Bull, ‘Merchant households’, 226-227. The account book is kept in Norwegian state archive (Trondheim), Privatarkiv 280 H. Hoë & Co., Hoë Boks 16.8. I would like to thank professor Ida Bull (Norwegian University of Science and Technology, Trondheim) for sending me a copy of this account book. 19 For obvious reasons, Danish creditors were not considered foreigners. Doing so would result in a fivefold increase in the money borrowed from foreigners. 20 Bull, ‘Immigrating merchants’, 4.

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98  |  The economic consequences of the Dutch

Table 4.1

Places of origin of the creditors of two Norwegian merchants Country

Lauritzøn (1697) Hoë (1791) % % Rd. Rd. Norway 1,769 36.4% 44,301 65.5% Denmark 1,479 30.4% 5,248 7.8% The Netherlands 1,613 33.2% 11,130 16.5% British Isles 6,180 9.1% Germany 771 1.1% Total 4,861 100.0% 67,631 100.0% Source: Based on Holmsen, Linderud, I, 88, 141-142; Bull, Trondhjemske handelshusene, 252-253;

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Norwegian state archive (Trondheim), Privatarkiv 280 H. Hoë & Co., Hoë Boks 16.8.

Although the particular economic situation of Denmark-Norway meant that semi-private companies only really became important from around 1730 onwards, Dutch capital had already been involved in earlier ventures.21 Some examples may be used to illustrate this point. When the first Danish East India Company was established in 1616, for example, we find Jan, David and Paulo de Willem (Amsterdam and Copenhagen), Peter Petersen Billefeld (Amsterdam) and Hugo Sfringk (Rotterdam) among the investors. Together they invested 18,900 rigsdaler (47,250 guilders). In a total share of the capital of 178,999 rigsdaler (447,498 guilders), this represented around 10% of the shares.22 In 1622 Jan Fransz. de Vries from Rotterdam approached Christian IV with a plan to establish and invest in a Guinea Company. De Vries and his friends demanded a monopoly on the trade for 8 to 10 years and exemption from taxes and tolls.23 Capital was also invested in companies that less obviously aimed to compete with the Dutch trading companies. From 1640 onwards the brothers Gabriel and Celio Marselis invested heavily in Norwegian mining. This was particularly lucrative because they received all kinds of privileges from the Danish King.24 Dutch capital was also involved in the Danish Royal Salt Company that was established in Copenhagen in 1665. The original investors were Admiral Cort Adelaer, Jonas Treslong and William Davidson. Davidson and his brother-in-law Coenraad van Klenck, who later purchased part of

21 22 23 24

Stancke, The Danish stock market, 110-111. Willerslev, ‘Danmarks første aktieselskab’, 622-626. Kernkamp, Verslag, 276-277. Lauridsen, Marselis konsortiet, 101-117.

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The integration of Denmark-Norway in the Dutch capital market  |  99

Davidson’s share in the Company, were important Amsterdam merchants.25 Just as had happened with private companies, Dutch involvement in semiprivate companies increased as time progressed. In 1772 about one million guilders were invested in shares of the Asiatic Company. This represented an estimated quarter of the outstanding stock.26 In addition to investment in shares of semi-private companies, the Dutch also made loans to such companies. From the literature and the card index of Amsterdam’s notarial archive, ten loans to semi-private companies could be retrieved for the period 17591805. Seven of these were made to the Asiatic Company and the other three were made to the West India Trading Company, the Royal Patented Sugar Refinery in Bergen and a refinery in Copenhagen (see Appendix V).27 Closely associated with the loans to the sugar refineries were the 30 plantation loans that were negotiated during the period 1767-1784 (see Appendix VI). Such loans were often negotiated for multiple plantations at the same time. Based on the available information, the average sum lent per plantation amounted to about 95,000 guilders. This was somewhat higher than the average of 79,000 guilders that the sugar refineries attracted. But these are only modest amounts when compared to the loans provided to the Asiatic Company. This difference in loan size was probably related to the annual turnover and capital stock of the debtor companies. Plantation owners, for example, used their colonial produce as collateral and promised to send it to their Dutch creditors.28 The owners of the Bergen sugar refinery pledged their refinery. Since the size of the annual harvests and the worth of the sugar refinery were modest when compared to the trade and capital stock of the Asiatic Company, it is clear why the latter could acquire much larger loans. Similarly, the difference in size between the West India Trading Company and the Asiatic Company thus also explains why the former could ‘only’ borrow 112,500 guilders.29 There thus seems to have been a relationship between the value of the collateral and the size of the loan that one could negotiate. Figure 4.1 combines the eighteenth-century information on credit extended to semi-private companies, Dutch share ownership in the Asiatic

25 Kernkamp, Baltische archivalia, 92-96; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-22. For Davidson and Van Klenck, see Elias, De vroedschap, II, 564-568, and Zandvliet, De 250 rijksten, 316-317. 26 Feldbæk, India trade, 13. 27 The Dutch investors in the Bergen sugar refinery went by the names of Petsch, Cloek and De Wetstein and came from IJsselstein and Leiden. After 4,500 fl. had been paid off in April 1766 they still had 20,000 fl., 11,000 fl. and 9,500 fl. outstanding, respectively. Johan Reutz in Bergen was authorized to claim payment of these sums by 1 October. This conflict about redeeming the principal suggests that it had originally been provided for less than 7 years. 28 Van de Voort, Westindische plantages, 91-93, 102-103, 254-259. 29 Stancke, The Danish stock market, 110-111.

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100  |  The economic consequences of the Dutch

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Company, and plantation loans.30 These investments seem to have been concentrated in the second half of the eighteenth century. During the 1770s and 1780s they reached a peak of just over 15.5 million guilders. From the mid1780s decline set in and at the end of the eighteenth century it is probable that only about one million guilders were outstanding in these funds. Since evidence of the cost of capital was only available for the second half of the eighteenth century, it is not possible to make any firm conclusions about the long-term development of interest rates charged to DanoNorwegian (semi-)private companies. The information that was available, however, indicates that Dutch creditors differentiated between the various types of debtors. During the latter half of the eighteenth century, semi-private companies seem to have acquired capital at an interest rate of 5%. These companies – or at least their headquarters – were located much closer to home, so Dutch creditors may have perceived it to be much easier to keep an eye on them and intervene judicially when faced with non-payment. The plantations were located in the West Indies, which may have made them more difficult to monitor. Their performance could also be subject to harvest fluctuations. Dutch investors thus attributed a larger risk premium to the plantation loans and charged the planters 5.7% (unweighted) or 5.8% (weighted) interest.31 Due to a lack of interest rate data the chronological scope of this section largely had to be restricted to the second half of the eighteenth century. The following section will, however, be able to provide a wider perspective on the costs of governmental borrowing.

30 As is explained in more detail in Appendix VII, the agio of bank money was used to convert the data on Dutch investments in English funds – which are collected in Chapter 5 – from English pounds to current Dutch guilders from 1694 onwards. Given the fragmented nature of the agio data, such a procedure could not be used for the seventeenth century. With respect to the Dano-Norwegian data, it could not always be deduced from the sources whether credits extended to Danish debtors were made in bank money or in current guilders. For these reasons the agio of bank money has not been used when converting the value of these credits to Dutch guilders. The implication of this is that the values presented in Chapters 4 and 5 for Denmark-Norway may in reality have been slightly higher. The exceptions to this are the data presented in Figures 5.5 (data converted to English pounds) and 5.6 (Danish figures already in current Dutch guilders). 31 The three 10% life annuities were not included in this average. Also see Chapter 5 for the plantation loans.

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The integration of Denmark-Norway in the Dutch capital market  |  101

Figure 4.1 4.1Dutch investment

in semi-private companies, share ownership in the Asiatic Company and plantation loans, 1750-1800 (in millions of guilders) 16 14 12 10 8 6 4 2 0 1750

1760

1770

1780

1790

1800

Source: Appendices V and VI. Note: Semi-private companies. Where available, information on redemption and loan period was used. When a loan was still open in a certain year, it was assumed that it was redeemed in three instalments. It was assumed that the 1763 loans to the Asiatic Company and Bank were provided for ten years. With respect to the 1765 loan it was assumed that 80% was redeemed in 1767 and that the 4.2remainder was redeemed in the three years after 1783. Share ownership in the Asiatic company. In 1772 this amounted to about one million guilders. I have assumed that these shares were purchased in the preceding ten years and were sold again in the following ten years. Plantation loans. When a loan 30 period was available, this was used, otherwise the last known year was taken and it was assumed that 25 the loan was redeemed in three years. In all other cases a loan period of 15 years was used.

20

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15 Dutch credit to the Danish Kings 4.3 10 Contrary to the belief commonly held in the literature, data in published and archival sources demonstrate quite clearly that the Danish Kings used Dutch 5 credit much earlier than the mid-eighteenth century. It is likely, for example, that 0 during the early sixteenth century the Danish Kings Christian II and Frederick I were able to obtain Amsterdam from 1560 1580 1600 already 1620 1640 1660 1680credit 1700 in1720 1740 1760 1780their 1800factor Pompejus Occo. However, Nübel, Occo’s biographer, assumed that such credits were not very frequent since the Kings had a positive balance of pay4.3ment with Occo.32

14% 32 12%Kernkamp, ‘Rekeningen’, 256-261; Nübel, Pompejus Occo, 67. 10% 8% 6% 4% 2%

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102  |  The economic consequences of the Dutch

In order to provide more evidence to cover the period between the early sixteenth century and the second half of the eighteenth century, the latter being well-documented by the work of Riley, two inventories compiled by Dutch historian Kernkamp were of crucial importance. During the years 1900, 1906 and 1907 Kernkamp visited archives and libraries in various Scandinavian and Baltic towns in order to list and briefly summarize documents and publications relevant to Dutch historians. The pages in these books were scanned visually for amounts and the index was used to locate the names of persons and companies. In this way a large number of references to loans could be retrieved and the archival sources were subsequently studied in order to collect the necessary information.33 Additional evidence was collected from the card index of Amsterdam’s notarial archive and from the secondary literature.34 Key characteristics of the loans have been collected in Appendix IV.35 Since this type of credit – especially the eighteenth-century loans negotiated with the Amsterdam banking houses – tended to leave more traces than private contracting, it is believed that a considerable share of the overall loans has been traced and that this inventory thus offers a representative overview of the loans negotiated in the Netherlands by the Danish Crown. The first actual proof of loans could be found for the 1560s. In 1563 Frederick II approached William of Orange to help him raise credits in Antwerp to the value of 300,000 to 400,000 dalers in order to equip an army. The Antwerp financiers reported, however, that they could not deliver the requested sum since they already had large amounts outstanding in France and England. As a result of the bad payments of France, England, Portugal and others, they were not willing to extend credit unless a good collateral could be provided. William therefore advised Frederick to send a letter with more information on the collateral that he could provide. Orange also approached merchants from Amsterdam, but eventually he had to report that his attempts had been futile. 36 One year later – in 1564 – Frederick was more successful as he was able to borrow 40,000 dalers from Antwerp merchant Johan Fleming. Since this loan involved the return of confiscated goods it is not clear to what extent the conditions of the loan represented actual mar-

33 Kernkamp, Verslag; Kernkamp, Baltische archivalia. I would like to thank Dr. Erik Gøbel (Danish national archives, Copenhagen) for being so kind as to provide copies of the documents under consideration. 34 Elias, De vroedschap; Lauridsen, Marselis konsortiet; Dormans, Het tekort; Amsterdam municipal archive, Notarial archive (5075), inv. no. 6144, acts 603, 615, 692 and 693. 35 Loans to the Bank of Copenhagen have been included here because this bank was closely involved with government policy. 36 Kernkamp, Verslag, 309-310; Instituut voor Nederlandse Geschiedenis, De correspondentie van Willem van Oranje, letters dated 14 June 1563, 9 October 1563 and 28 December 1563. For the English loans, see Outhwaite, ‘Trials of foreign borrowing’, and Outhwaite, ‘Royal borrowing’.

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The integration of Denmark-Norway in the Dutch capital market  |  103

ket circumstances. Fleming may have been anxious to recover the goods and may therefore have agreed to a relatively low interest rate. Although credit relations with the Netherlands already existed during the sixteenth century, the real commencement of attracting Dutch credit should actually be placed after the first quarter of the seventeenth century. The loan negotiated with Jacques de Mares and Company (1627), the involvement of the Marselis family in Danish state finance and the loans provided by various Dutch authorities should be interpreted in this way. The Marselis family was of Antwerp origin but fled to Hamburg during the Revolt. Eventually, Amsterdam became the headquarters from where the brothers Gabriel and Celio delivered goods and credit to the Danish Crown. For various reasons, not all of their loans could be included in Appendix IV. An indication of their importance to the Crown can be gained, however, from the value of the estates that they received as (partial) payment for their credits. Danish historian Lauridsen estimates them at a total value of almost 1.9 million rigsdaler, but this figure includes some estates that were received from other creditors as well.37 During the eighteenth century specialist banking houses took over the role of creditor. When all the evidence is taken together (see Figure 4.2) it becomes clear that borrowing in the Netherlands took place in two waves. During the first wave, which roughly covered the period from around 1625 to the early eighteenth century, the maximum amount of capital outstanding at any moment in time was around 2.5 million guilders. It should be remembered, though, that these figures significantly underestimate the credit provided by the Marselis family, so the maximum figure may actually have been closer to 3-3.5 million guilders. The 1720s and 1730s saw some relatively small-scale borrowing, but during the second wave – in the second half of the eighteenth century – a maximum of around 27 million guilders was outstanding during the 1780s. At 18.9 million guilders, the average for the period 1763-1800 was much lower, however. Warfare was probably an important reason for borrowing money. In 1563 Frederick II explicitly mentioned this – i.e. the Seven Years’ War with Sweden (1563-1570) – as reason for his attempt to negotiate a loan. Since income matched expenditure in 1559 and because it proved relatively easy to restore a normal financial situation after the war with Sweden, borrowing during the 1560s was only necessary to overcome some short-term liquidity problems.38 The situation of sufficient income seems to have persisted, as prior to c. 1630 there were no real shortages in Danish state finances. From the 1620s on-

37 Lauridsen, Marselis konsortiet, 205-206; Amburger, Die Familie Marselis; Harris, Marselisslægten; Fridericia, ‘Marselis’. 38 Feldbæk, Danmarks økonomiske historie, 50.

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104  |  The economic consequences of the Dutch

wards, however, increased spending on the army and navy played an important part in the rising demand for capital.39 During the rest of the period under review, warfare also seems to have been an important reason for being active on the Dutch credit market. During the seventeenth century, wars with Sweden took place in 1611-1613 (Kalmar War), 1643-1645 (Torstensson War), 1657-1660 (Northern Wars) and 1675-1679 (Scanian War) and Denmark also intervened in the Thirty Years’ War (1625-1629). During the eighteenth century Denmark was involved in the Great Northern War (1700 / 1709-1720) and the Russo-Swedish War (1788-1790). Although Denmark remained neutral during the Seven Years’ War (1756-1763) and the American Revolutionary War (1775-1783), pressure on the Danish currency – also after the wars had ended – and tax receipts, as well as experimentation with note supplies and the costs of armed neutrality meant that large sums had to be borrowed.40 In this respect Denmark fits into a much larger group of early modern states that borrowed (abroad) in order to finance warfare. These states turned to the commercial and financial centres of the time – prior to Amsterdam’s rise as capital market these were Antwerp and Genoa – in order to borrow from the resident merchants.41 However it is still not clear how the Danish Kings were able to increase international borrowing by millions of guilders. Section 4.6 will pay more attention to this. The present section will now continue by charting the price of the borrowed capital. Before interest rates can be analysed, three aspects of the available rates should be taken into account. Firstly, legal maximum interest rates applied in Denmark-Norway.42 Section 4.4 will look at this in more detail. Secondly, since interest rates on short-term and long-term loans usually differed because they were associated with different levels of uncertainty, the collected interest rates cannot be compared to each other straightaway. Figure 4.3, in which they have been put together, therefore distinguishes between short-term loans (one year), long-term loans (up to 20 years) and loans for which no maturity was specified or could be discovered. Thirdly, nominal interest rates did not always represent the rate that was actually paid. Merchants would have included additional profits in the commercial transactions that were often involved in providing credit, and banking houses charged additional commission and courtage. However, it will be argued in section 4.5 that this did not cancel out the overall picture, but instead it will be shown that the decrease was amplified.

39 Bosse, Norwegens Volkswirtschaft, II, 3-8; Ladewig Petersen, Christian IV.s pengeudlån. 40 Riley, International government finance, 136-144. 41 Braudel, Perspectives of the world, III, 157-174; Van der Wee, Growth of the Antwerp market, II, 199-207, 220-222; Outhwaite, ‘Trials of foreign borrowing’; Outhwaite, ‘Royal borrowing’. 42 Imsen and Winge, Norsk historisk leksikon, 343 (‘rentefot’); Rygg, Norges banks historie, I, 11.

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0 1750

1760

1770

1780

1790

1800

The integration of Denmark-Norway in the Dutch capital market  |  105

Figure 4.2

Outstanding 4.2

Dutch credit to the Danish Kings, 1560-1800 (in millions of

guilders) 30 25 20 15 10 5 0 1560

1580

1600 1620

1640 1660 1680 1700

1720

1740

1760

1780 1800

Source: Based on Appendix IV. 4.3 Note: It was assumed that small loans were short-term loans. Where available the loan period for long-term loans was used except when it was evident that this loan period was not kept to. The latter was mainly the case with the loans negotiated during the second half of the eighteenth 14% century. For loans for which it was evident that they were still open in a certain year, it was as12% that they were fully redeemed in the following five years. For the post-1750 loans the availsumed

10% able information given by Johansen, Dansk økonomisk politik, 108, 228, 296-298, and Johansen, 8% ‘Danish-Dutch economic relations’, 206, about redemption was also used. For life annuity loans 6%assumed that they were redeemed in five terms after six years; the 1699 loan has been put it was at the 4%same terms as the 1700 loan and the loan period of the 1788 loan has been put at 10 years with2% redemption in five instalments. As will be discussed later, some of the loans were taken over by the 0% States of Holland in 1702. This meant that they could no longer be considered to be loans Copyright © 2008. Amsterdam University Press. All rights reserved.

to the1560 Danish1580 King. 1600 1620 1640 1660 1680 1700 1720 1740 1760 1780 1800

short-term

long-term

unknown

The interest rates collected in Appendix IV have been put together in Figure 4.3. The trend of decreasing interest rates between 1564 and 1788 is quite obvious. This holds for both short-term and long-term loans. Interest rates on short-term loans decreased from 12% in 1564 to 6% around the 1660s and 4.4 3%-4½% in 1723. The price of long-term loans was 5%-6% around 1650 and 4% during the second half of the eighteenth century. When the 4% interest rate for the post-1775 period is combined with the data for semi-private and plantation loans presented in the previous section, a clear risk hierarchy emerges for the second half of the eighteenth century. The Danish government was generally charged 4%, the semi-private compaNetherlands

Denmark-Norway additional risk premium D-N additional transaction costs D-N transaction costs N risk premium N base rate

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30

106  |  The economic consequences of the Dutch 25

20

nies paid 5% and the planters had to pay just under 6%. Since the opportunity15costs of capital were identical – all loans were provided by Dutch capitalists – this suggests that Dutch investors attributed a different risk premium43 to 10 type of Danish debtor to whom they provided a loan. However, whether each this also means that the risk was determined accurately and that ‘correct’ in5 terest rates were charged to these debtors is not clear. The following sections will try to document why interest rates decreased and why the Danish Kings 0 were as the most trustworthy debtors Denmark-Norway. 1560perceived 1580 1600 1620 1640 1660 1680 1700 in 1720 1740 1760 1780 1800

4.3 Figure 4.3

Nominal interest rates charged to the Danish Kings, 1560-1800 14% 12% 10% 8% 6% 4% 2% 0% 1560 1580

1600 1620 1640 1660 1680 1700 1720 1740 1760 1780 1800 short-term

long-term

unknown

Source: See Appendix IV. Note: Not all loans could be included since interest rates were not always known or because an effective interest rate could not be determined (e.g. in case of the 1690 life annuity). Lauridsen,

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Marselis konsortiet, 84-85, states that the 8% nominal interest charged on the 1647 loan was ex4.4 ceptionally high.

4.4 Considerations regarding interest rates The decreasing interest rates found in Figure 4.3 were of great economic and political importance. They allowed the Danish Kings to increase spending while keeping absolute interest payments constant. If one wants to underDenmark-Norway stand why theNetherlands interest rate charged to a debtor could decrease over time and additional risk premium D-N why different debtors were charged differently, it is important to have a good additional transaction costs D-N transaction costsare N formed. Given the importance for understanding of how interest rates risk premium N base rate

43 A discussion will follow in section 4.4.

4.5

0.7 0.6 0.5 van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest0.4 Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

0.3

The integration of Denmark-Norway in the Dutch capital market  |  107

governments of being able to negotiate loans at reasonable rates of interest, the historiography has naturally also addressed the topic of interest rate formation. This section will therefore discuss this literature in order to develop some handholds for studying the observed phenomenon in more detail. Since long-term data are only available for government loans this discussion will be largely directed towards aspects relating to this type of credit. Just like wages on the labour market, interest rates represent the price of capital on the capital market. They are determined through supply and demand and include – besides a compensation for the opportunity costs of capital, which will be called the base rate here – compensation for transaction costs (i.e. the additional costs of managing a loan) and various kinds of risk grouped under the label ‘risk premium’. The latter includes variables such as the expected rate of inflation, changes in the exchange rate, the liquidity of an asset and the risk of reneging and defaulting.44 From the perspective of the Dutch capital market, not all investment opportunities were equal and the transaction costs and risk premium explain why at the same time a creditor may charge different interest rates to his different debtors. Overall interest rates changed because base rates, transaction costs and risk premiums changed. In Denmark-Norway the government had fixed the maximum rate for loans with a solid collateral. In Norwegian these pledge loans were called pant loans since the Norwegian word for a pledge was pant. Before 1643 the rate was 5%, during the period 1643-1695 it was 6%. Thereafter it was 5% and in 1767 this was further reduced to 4%.45 Around 1800 it was proposed that a maximum interest rate of 4% on sure collaterals (immovables) and 5% on less sure collaterals (movables) was imposed.46 In one case – the 1665 Salt Company mentioned above – Dutch creditors demanded payment of outstanding sums with a compensation of 6% interest ‘according to practice’ in Denmark.47 Because this concerned an ex post claim for compensation of foregone capital income, creditors could not ask for higher rates than the maximum of 6% allowed at the time. It remains to be seen, though, to what extent these measures were effective and actual interest could be regulated when in the ex ante phase of a loan. The literature shows awareness of the fact that debtor and creditor could agree with each other that less money would be handed over than was registered in the formal contract. Since interest would be paid on the full, registered amount, the actual interest rate could be raised without leaving any trace in the sources. Bills of exchange

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.

44 45 46 47

Mishkin, Money, banking, and financial markets. Imsen and Winge, Norsk historisk leksikon, 343 (‘rentefot’). Rygg, Norges banks historie, I, 11. Kernkamp, Baltische archivalia, 92; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-22.

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108  |  The economic consequences of the Dutch

also offered the opportunity of evading maximum interest rates.48 The present study found one case – the Bergen sugar refinery of 1759 – in which loan and collateral were registered in the local Norwegian pantbook.

Table 4.2

Interest rates on pantloans in Viborg, 1651-1750 Period 1651-1660 1661-1670 1671-1680 1681-1690 1691-1700 1701-1710 1711-1720 1721-1730 1731-1740 1741-1750

N 7 26 38 74 118 152 134 209 209 281

3% 0 0 0 0 0 0 0 0 0 1

4% 0 0 0 0 1 2 0 1 1 50

4%-5% 0 0 0 0 0 1 1 0 1 15

5% 0 0 0 1 64 149 133 208 207 215

6% 7 26 38 73 53 0 0 0 0 0

% at legal maximum 100.0% 100.0% 100.0% 98.6% 98.0% 99.3% 99.5% 99.0% 76.5%

Source: Nielsen, ‘Dänische Preise’, 307 (also note 1)-308. Note: The reduction of maximum interest rates that took place during the 1690s cannot be identified in the table because Nielsen presented the data in aggregated form. Given the fact that the distribution of observations is shared evenly between 5% and 6%, it seems that the shift was

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rather abrupt.

Information on pantloans agreed upon in the Danish town of Viborg shows (see Table 4.2) that during the period 1651-1720 loans were almost solely made at the maximum legal rate. The absent or limited spread of interest rates could imply that pantloans were traditionally agreed upon at a certain rate of interest or that the involved parties used ways to evade the government’s regulations. The reduction during the 1690s and the fact that during the 1740s a more diffuse pattern had emerged, suggest that tradition may not have played that much of a role. Evidence presented in Appendix IV also shows that interest rates exceeding the legal maximum (8% in 1647 and 12% in 1564) were paid by the Danish Kings themselves. Sections 4.5 and 3.6 will

48 Take for example, a one-year loan of 103 guilders at the maximum interest rate of 5%. At the end of the year the debtor has to refund 1.05 x 103 = 108.15 guilders. But if the debtor had only received 100 guilders from the creditor, the actual interest rate would have been 8.15% instead of the 5% legal maximum. See Flandreau et al., ‘The bell jar’, 9-12; Samuelsson, ‘International payments’, 166, 201-202.

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The integration of Denmark-Norway in the Dutch capital market  |  109

furthermore show that trade margins and transaction costs raised the actual costs of capital during the period under review. The effect of having maximum interest rates would therefore have been limited. With respect to decreasing interest rates, the historiography has paid most attention to the reduction of the risk premium. In an article from 1989, for example, North and Weingast argued that the type of government was of crucial importance in determining the risk premium. They believed that the risk of arbitrary behaviour (such as reneging or defaulting) added a substantial risk to lending to monarchs. The existence of veto players – persons or institutions such as a representative government that could oppose the decisions of a monarch – provided a check upon such arbitrary behaviour and at the same time involved the creditors in policy-making. In their case-study North and Weingast analysed English governmental finance before and after the Glorious Revolution of 1688. According to them the increased importance of Parliament not only implied a credible threat of removal to the King but also put the government on a sound financial footing. The latter was achieved through ear-marking taxes to service new long-term loans and establishing an institution that had to administer these loans (the Bank of England). According to the authors these changes made the government more predictable with respect to their creditors and more dedicated to upholding agreements. As a consequence, lending to the government became less risky and this in turn enabled the government to pay lower interest rates on its loans.49 David Stasavage agrees with North and Weingast on the importance of veto players, but he also points out that simply having a parliament does not sufficiently explain the decrease in interest rates. A majority vote was necessary in order to really protect creditors. Since various members of Parliament could have different interests – Stasavage discerns between owners of land and owners of capital – the outcome of the political process in Parliament was also of great importance. He shows that the rise of political parties and voting discipline enabled one party, the Whigs, to raise a majority and use their political power in support of state creditors from about 1715 onwards. Only from that point onwards did interest rates really decline. Stasavage also argues that there were other veto players besides Parliament (i.e. the Bank of England and ministers) that could play such a role. He concludes that a pro-

49 North and Weingast, ‘Constitutions and commitment’. The authors also made the point that there was a relationship between the rise of representative government (i.e. the Glorious Revolution), the emergence of a secure property rights regime and economic growth (i.e the Industrial Revolution). They saw secure property rights, which in their opinion could only be established through a representative government, as being a necessary and sufficient condition for economic growth. This view has been nuanced by, among others, Clark, ‘Political foundations’, and Quinn, ‘The Glorious Revolution’s effect’.

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110  |  The economic consequences of the Dutch

creditor party holding one or more of these veto positions was what reduced interest rates and not simply having a parliament alone.50 Sussman and Yafeh, who also found that there was a time lag between the reforms of the Glorious Revolution and falling interest rates, argued that institutional reforms did not lead to lower interest rates in the short run. England’s superior institutions were only appreciated by the capital market from around 1730 onwards. The authors argue that the decreasing interest rates were the result of a more intricate set of variables, which included political changes, improved debt management techniques, the development of secondary markets and the possibility that the credibility of new institutions was only established as time progressed.51 The North and Weingast thesis has also been criticised by Epstein. By using a broad chronological and geographical perspective, Epstein was able to show two important things. Firstly, he documented that between 1300 and 1688, interest rates charged to English monarchs had already decreased substantially. All this had been realised without Parliament’s control. Moreover such a long-term decrease in interest rates was also found to be the case for other monarchies. Secondly, other European monarchs paid lower interest rates than the English monarch, even after 1688. Epstein therefore argued that only technical disparities in fiscal and financial institutions – most importantly the creation of a funded debt – were responsible for differences and changes in interest rates. Borrowers that had access to such institutions were charged with lower interest rates because they could more easily honour their debts. On the Continent warfare was often the catalyst that made authorities responsive to new techniques because these allowed them to increase their borrowing while keeping interest payments constant in absolute terms. The inclusion into the more competitive state system of continental Europe forced England to increase its expenditure on warfare. This in turn led to an associated rise in governmental borrowing, which increased the incentive to finally introduce such techniques as well.52 Although these studies touch upon important aspects determining interest rates, they mostly focus on the question of how the risk premium was reduced. Little or no attention has been paid to transaction costs and the base rate. In this way it has remained unclear to what extent changes in these variables could influence the height of interest rates charged to the early modern governments. As time progressed, creditors may have become more efficient in collecting and distributing sums of money. And since base rates differed from location to location depending on local supply and demand 50 Stasavage, ‘Credible commitment’; Stasavage, Public debt; Stasavage, ‘Partisan politics’. 51 Sussman and Yafeh, ‘Institutional reforms’. 52 Epstein, Freedom and growth, 12-37.

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The integration of Denmark-Norway in the Dutch capital market  |  111

conditions, finding the location with the lowest base rate and gaining access to this market also was of great importance. Since such markets could very well be found abroad, the Dutch capital market was the obvious target for foreign parties wishing to attract capital. A more comprehensive discussion of the variables involved in providing credit to the Danish Kings – financial techniques, veto points, transaction costs and base rates – may thus provide a fuller understanding of the process of the decrease in interest rates. Assigning precise weights to each explanatory variable will be rather difficult, but the schematic representation in Figure 4.4 may be helpful in interpreting some of the larger trends. It presents a stylized representation of the interest rates charged by Dutch creditors to the States of Holland and the Kings of Denmark-Norway. Base interest rates are identical for both since these were determined by supply and demand in Holland. As was explained earlier most loans would also have included a risk premium. Since the States of Holland used advanced financial techniques – i.e. they had a funded debt – and had already established a reputation of being a good debtor, they were able to pay modest risk premiums.53 The Danish Kings had to pay an additional premium for using less advanced financial techniques (i.e. not having funded their debt as well) and for not having such a well-established reputation. Distance and monetary differences may also have increased transaction costs. 54 Figure 4.4 suggests two approaches to finding an answer to the question posed above. Firstly, base rates should be studied. Under ideal circumstances Danish and Dutch creditors should have made a similar valuation of the risks associated with providing credit to the Danish King. Therefore they could only distinguish themselves through their base rates. Since the capital supply was larger in the Netherlands, base rates were most likely to be lower there. Given the fact that Danish and Dutch creditors should have assigned a similar risk to the loans they provided to the Danish Kings, gaining access to the Dutch capital market would already have reduced the interest rates paid by the Danish Kings, and this would not have required any political or financial-administrative reform whatsoever. Secondly, we can exploit the fact that Dutch creditors should have charged identical interest rates to both debtors 53 Tracy, A financial revolution; ’t Hart, ‘The merits’; Fritschy, ‘A “financial revolution” reconsidered’. 54 As will be documented elsewhere in this chapter and in Chapter 5, the risks associated with exchange rates were removed by Dutch investors since many of their loans were negotiated in Dutch guilders. This also meant that inflation was actually domestic inflation and this reduced the problem to the same level that any other type of loan made on the Dutch market also had to deal with. See, for example, Buist, At spes non fracta, 23, for evidence on the banking house Hope & Co. As we will see, liquidity of the asset could play a role but limiting the present discussion to reneging / defaulting risks and transaction costs is unlikely to distort the overall picture much.

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14% 12%

112  |  The economic consequences of the Dutch 10% 8% 6%

if they were using similar financial techniques and if the transaction costs 4% were equal. The additional premium charged to the Danish Kings can there2% fore be used as indicator of the extent to which Dutch financial techniques 0% were copied and transaction costs were reduced. This additional premium 1560 1580 1600 1620 1640 1660 1680 1700 1720 1740 1760 1780 1800 can be determined by simply subtracting interest rates charged to the States long-term unknown of Holland from interestshort-term rates paid by the Danish Kings.

Figure 4.4 4.4

Schematic representation of interest rates charged by Dutch creditors

Netherlands

Denmark-Norway additional risk premium D-N additional transaction costs D-N transaction costs N risk premium N base rate

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4.5 Section 4.5 will be occupied with (additional) transaction costs and base rates.

Since these relate to the creditor side of loans the discussion will centre on the 0.7Netherlands. Section 4.6 will then turn to the additional risk premium and the additional premium as a whole (additional transaction costs + addi0.6 tional risk premium) and will pay attention to financial techniques and veto 0.5 points. 0.4 0.3 0.2 0.1 0.0 1560

1580

1600 1620 1640 1660 1680 1700 1720

1740 1760 1780

1800

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The integration of Denmark-Norway in the Dutch capital market  |  113

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4.5 Base rates and transaction costs Interest rates on private and governmental loans decreased in the Netherlands from around 1600 onwards. Recent research has uncovered that the growth of the Dutch economy played an important role in making this decrease possible. This growth meant that large sums accumulated in Dutch hands through profits made in business dealings.55 But in order to keep this growth process going capital was continuously reinvested and therefore tied up in new business dealings. Such a process could easily have exerted an upward pressure on interest rates, were it not for the fact that merchants started to use written proof of one’s participation in one particular undertaking as collateral for loans. The undertaking in question was the VOC. Gelderblom and Jonker have shown that the existence of a lively secondary market for VOC shares enabled merchants to use their shares as collateral in business dealings. It was easy to check whether someone actually possessed VOC shares and because a considerable secondary market existed, one could also dispose of the shares in cases where they were actually handed over. The fact that shares could easily be sold meant that the risk associated with using a collateral was significantly reduced. Moreover, a flexible source of more than six million guilders of additional capital became available since capital was no longer just tied up in one business venture but could also be used as collateral to finance other new undertakings at the same time. The authors argued that this commercial development also triggered the wider use of government bonds that could be traded on the same secondary market. The increased liquidity made these bonds less risky assets and subsequently creditors were satisfied with lower interest rates.56 The rapid economic expansion also was of great importance for financing the Dutch government. Dutch historian Fritschy has documented how it enabled the government to spectacularly increase its income through a ‘tax revolution’. Population growth, higher wages, the taxation of a broader range of goods and the inclusion of the countryside in the urban taxation system were responsible for this. It has commonly been thought that assigning the future income from these taxes was used to establish a funded long-term debt at low rates of interest.57 Fritschy shows, however, that an important part of this extra income was not used to raise loans but to directly pay for the war

55 See De Vries and Van der Woude, The first modern economy, 669-670, for a summary. Figures for one sector may illustrate the amounts that were involved. De Vries and Van der Woude, The first modern economy, 373, estimate that during its best decades in the period 1580-1650 the grain trade may have generated over one million guilders of profit annually. Van Tielhof, The ‘mother of all trades’, 194-196, agrees with these figures. 56 Gelderblom and Jonker, ‘Completing a financial revolution’. 57 Tracy, A financial revolution.

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114  |  The economic consequences of the Dutch

effort. Since the transfer of long-term annuities was subjected to taxation, investors also preferred short-term obligations that were rolled over indefinitely but which were not subjected to such taxation. Attempts by the government to convert the short-term debt into long-term annuities were therefore fruitless. Creditors were much more interested in a temporary store of value that could easily be sold and which yielded some interest on the side; even if this meant that reduced interest rates had to be accepted.58 Between 1600 and 1650 the States of Holland were thus able to reduce interest rates from 8%9% to around 4%. From the late 1680s to c. 1715 these rates were reduced even further by an additional 1.5%, but since financial techniques had not changed much, this second round of decreasing interest rates should probably be attributed to the fact that the capital supply had increased considerably during the seventeenth century. Also, during the eighteenth century the Dutch capital supply held interest rates down.59 Although it remains difficult to determine the exact importance of each variable in the diminishing interest rates paid by the States of Holland during the seventeenth and eighteenth centuries, it seems evident that the base rate decreased as well as the risk premium.

Table 4.3

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The Dutch creditors of the Danish Kings Merchant houses Johan Fleming Jacques de Mares and Co. Marselis family Samuel Sautijn Joachim Irgens Johanna van Breugel Anthonij Bierens Elisabeth Tiellens Nicolaes Groen

Banking houses Widow Balde and Son Boas Clifford Dull Orsoy & Son

Governments Amsterdam States of Holland States General

Source: Appendix IV.

Now that we have seen that base rates must have decreased during the period in consideration, the following part of this section will turn to transaction costs. By this it is meant the additional costs related to negotiating loans

58 Fritschy, ‘A “financial revolution” reconsidered’. 59 Gelderblom and Jonker, ‘Exploring the market’; De Vries and Van der Woude, The first modern economy, 125.

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The integration of Denmark-Norway in the Dutch capital market  |  115

for the Danish Kings. This concerned the collection and distribution of sums associated with these loans, but also ‘hidden’ capital costs. It is thought here that the type of creditor influenced the height of these transaction costs. Therefore, let us first have a look at the creditors. Table 4.3 distinguishes between three groups of creditors: merchant houses, banking houses and governments. The group of merchant houses seemed to consist only of very well-to-do people. Gabriel Marselis was one of the wealthiest Amsterdam merchants of the seventeenth century. Sautijn, Irgens and De Mares also belonged to this group of important Amsterdam merchants. Johanna van Breugel was the widow of Abraham Douglas who had fulfilled an important function within the VOC. Elisabeth Tiellens was the widow of the very wealthy Benjamin Poulle and had remarried to Jan Trip, who also had a considerable fortune.60 A noticeable aspect of the activity of these groups was the changing time at which each group was active as creditor. Merchant houses were only active during the seventeenth century. At that time the Marselis family was the most important Dutch creditor of Denmark-Norway. They fit into the category of large merchant houses that specialised in assisting one specific foreign government. Other important houses in this group were Deutz (Austria) and De Geer (Sweden). Their activities were linked to the fact that they were given important commercial concessions regarding goods such as copper and mercury.61 The fact that only large merchant houses were acting as creditors probably meant that it required a considerable amount of capital in order to be able to provide foreign governments with substantial loans. Consequently the number of potential creditors must have been relatively small. Various Dutch authorities – we find Amsterdam, the States of Holland and the States General in the sources – were active as creditors during the second half of the seventeenth century. Strategic considerations may have played a role in making them assume such a position. Maintaining the power balance between Denmark and Sweden and keeping the Sound open for Dutch trade were important objectives of Dutch foreign policy. Accepting Dutch credit made the Danish Kings to some extent dependent on the Republic and this could be exacerbated politically.62 However, there is also evidence that points in a different direction. The loans that were negotiated in 1657, 1658 and 1666 became the liability of the States of Holland in 1702 for 4%. This suggests that Holland may have guaranteed these loans, but that the receiver general had collected the sums from the public. The explicit involvement of

60 Elias, De vroedschap, II, 559-560, 575, 670-672, 690-692; Zandvliet, De 250 rijksten, 11-12, 67-68; Amsterdam municipal archive, Notarial archive (5075), inv. no. 6144, act 603. 61 De Vries and Van der Woude, The first modern economy, 139-141. 62 See, for example, Kernkamp, Sleutels van de Sont, and Israel, The Dutch Republic.

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116  |  The economic consequences of the Dutch

the States of Holland would have been an assurance to the public and provides an explanation for the relatively low interest rates (5%) that these loans carried. In fact, they were on or not far from the level of interest paid by the States of Holland for their own loans. The Dutch authorities may thus have fulfilled a mediating role between the Danish King and the public in Holland in order to make up for the, as yet, underdeveloped international segment of the Dutch capital market.63 From the late seventeenth century onwards, however, the rise of specialised banking houses removed this problem. The house of Widow Balde and Son seems to have been a pioneer in negotiating loans for the Danish Kings and later we see a range of other houses negotiating such loans. By this point merchant houses and Dutch authorities no ­longer played a role in providing credit. How did the type of creditor relate to the height of the transaction costs? The most transparent evidence available is for the eighteenth-century banking houses. They received commission (a one-time gratuity for negotiating a loan) and courtage (compensation for collecting the principal, arranging annual interest payments and returning the principal when the loan matured). Actual capital costs were thus somewhat higher than the nominal interest rates would suggest. Information about courtage is available for the Dutch banking house Widow Jan Balde and Son. The archival sources for the 1735 loan show that the bankers received 1% of each sum that they handled (collecting and returning the principal and paying the annual interest).64 In his study of Hope & Co, Marten Buist found that quite similar fees were still common during the late eighteenth century. The documents relating to the involvement of Widow Jan Balde and Son studied here do not mention commission, but given the fact that courtage rates were still the same almost a century later one can presume that they also charged commission. The commission that Hope & Co received for the loans they had negotiated for Sweden during the period 1770-1787 ranged between 4% and 9½% of the capital sum.65 Nominal interest rates charged by the Dutch merchant houses to the Danish Kings usually corresponded to the legal maximum interest rate in Denmark.66 Given the modest difference with the interest rates paid by the

63 Dormans, Het tekort, 86, 91, 112-113. The loans were finally redeemed by the States during the 1780s. Appendix IV shows that these loans initially carried 5% interest. See Gelderblom and Jonker, ‘Exploring the market’, for interest rates paid by the States of Holland. 64 Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-26. 65 Buist, At spes non fracta, 24-27, 495. Note that receiving commission could be an incentive for banking houses to push a loan onto the market. Moreover, increasing this one-time payment could be cheaper for foreign debtors than raising the annually recurring interest rate. 66 Imsen and Winge, Norsk historisk leksikon, 343 (‘rentefot’).

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The integration of Denmark-Norway in the Dutch capital market  |  117

States of Holland this could suggest that transaction costs – and also the risk premium – could not be properly included in the nominal interest rate. The available sources (i.e. the obligations) thus only state the amount of due capital and the interest rate. No specifications were made about commission and courtage. The latter, the compensation for managing a loan, would not have been that much of an issue since there were simply not that many subscribers to a loan. The Marselis family may from time to time have borrowed from friendly merchants in order to finance their own credit to the Danish Kings, but this probably involved far fewer people than the eighteenth-century loans from banking houses, which used an elaborate network of entrepreneurs to reach even the large group of small creditors.67 Collecting and redeeming the principal and the annual interest payments thus did not require an elaborate administration. However there must have been costs for being present in Copenhagen, Christiania and Amsterdam – or maintaining a network of representatives (e.g. Johan Garman, the Norwegian agent of the Marselis family) – in order to provide capital to the Danish Kings, and this must have involved substantial sums of money.68 There is evidence that creditors sometimes received compensation for their transaction costs, but this does not seem to have been very common. In 1666, for example, Samuel Sautijn provided a 50,000 guilder loan (see Appendix IV) and it was agreed that he would receive an additional 3% compensation for sending money back to Holland if he was paid out of the Drammen toll. As was previously mentioned, in 1667 Henrik Müller promised to compensate Juan Nunes Henricques for the transaction costs the latter might incur when collecting the 6% interest that Müller would pay him. But how could merchants fully cover additional transaction costs (and additional risk premium) when their interest rates were tied to a maximum? They probably earned additional sums through the commercial transactions that were often linked to providing a loan. In 1643, for example, the Marselis brothers fitted out an entire fleet of men-of-war and were paid in timber from the Norwegian town of Drammen. When fitting out the fleet, they were in a position to overcharge the Danish King, who was in no position to negotiate. Subsequently they could probably also make a profit on the timber that they were provided with in Norway. There were thus two points at which ‘hidden costs’ could be charged to the King.69 Given the lack of highly-detailed infor-

67 Buist, At spes non fracta, 24-29. 68 Schreiner, Nederland og Norge, 38; De Boer, ‘Celio Marselis’, 65; Amburger, Die Familie Marselis, 21-67; Lauridsen, Marselis konsortiet, 69-81; Opsahl and Sogner, Norsk innvandringshistorie, I, 300-302. 69 Schreiner, Nederland og Norge, 38; De Boer, ‘Celio Marselis’, 65; Amburger, Die Familie Marselis, 21-67; Lauridsen, Marselis konsortiet, 69-81; Opsahl and Sogner, Norsk innvandrings­ historie, I, 300-302.

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118  |  The economic consequences of the Dutch

mation, it will probably remain unclear how high the nominal interest rates actually were. It is likely, though, that with already relatively modest sums, ‘hidden costs’ on seventeenth-century loans provided by merchants could have made interest rates higher than the rates – including commission and courtage – charged by eighteenth-century bankers. This discussion of the Dutch capital market shows two important things. Firstly, the capital supply increased through accumulation and the use of VOC shares and bonds as collateral for loans. This reduced base rates and the risk premium. Secondly, the rise of banking houses seems to have reduced the transaction costs associated with attracting funds on the Dutch capital market. The Danish Kings profited from these developments on the Dutch capital market – and the resulting decrease in capital costs – without ever having to modernize their own finances. This clearly demonstrates that including the creditor side of (international) lending enriches our understanding of decreasing interest rates. This does not mean, however, that the debtor’s point of view should not be taken into account. Section 4.6 will therefore take a look at the additional premium charged to the Danish Kings.

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4.6 The additional premium In addition to the discussion of (additional) transaction costs in section 4.5, some examples may illustrate the reasons why Dutch creditors may have wanted to include an additional risk premium as well. Sometimes creditors agreed to payment in kind (e.g. in 1643 the payment in timber), but frequently they were forced to accept goods and estates as payment. In 1664, for example, Gabriel Marselis was owed just over 450,000 rigsdaler by the Danish King. Although this claim was secured by future income from tolls and copper tithes, Gabriel had to accept the estate of Kallundborg as payment very much against his will. Since the King had estimated the value of the estate it came as no surprise that Marselis claimed that this estimate was too high. There was also an instance where a particular tax (the odelskat) was levied on an estate, despite the fact that it had been explicitly exempted from paying it. Payments did not follow suit either. In 1696 Johan Marselis, Gabriel’s son, was still in the process of trying to settle a case with the Danish King.70 Thus, given these problems there were good reasons to try to include an additional risk premium in the initial goods transaction by charging above market prices. The discussion in section 4.4 suggested that financial techniques, historical behaviour and pro-creditor politicians holding veto points could play a 70 Kernkamp, Baltische archivalia, 92-96; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-22.

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The integration of Denmark-Norway in the Dutch capital market  |  119

role in decreasing the risk premium charged to a government. At the end of section 4.4 it was suggested that the additional premium allotted to the Danish Kings could inform us about the extent to which Denmark-Norway matched the superior financial techniques of Holland. A decrease in the additional risk premium would suggest that financial techniques, reputation and pro-creditor policies became more homogeneous in both countries. Assuming that Holland would not have had an incentive to abandon a favourable and low-cost system of financial techniques, such a decrease would imply that Denmark-Norway was becoming a more trustworthy debtor. Let us start with the veto points. Since the creditors in this chapter were Dutchmen, they could not obtain veto points in Denmark themselves.71 There was a Dutch resident in Copenhagen, but he could only exert pressure on the Danish authorities in order to ensure that they did not renege or default on their loans with Dutch creditors. This might work in some cases, but it still meant that the creditors had to surrender to the whims of the Danish monarchs. Although there thus were no formal instruments to force payment, Dutch creditors could still decide to refuse them credit in the future. The Dutch authorities, who also provided some of the seventeenth-century loans, also had one other option: they could resort to force. But given the size of their loans, it is not clear whether sending a fleet to bombard Copenhagen would have been a plausible way to enforce payment. With respect to Dutch creditors, veto points should be disregarded as an explanatory variable responsible for the decrease in interest rates. It should be noted that the fact that they played an important role in Danish government finance might imply that domestically there was a deliberate policy to try to limit Danish players from acquiring political power through providing credit. The introduction of absolute monarchy by Frederick III could point in this direction as theoretically it could have reduced the number of veto points therefore making it more difficult for parties sympathetic to state creditors to have their way. At about the same time, however, the city of Copenhagen was able to acquire new privileges and large merchants became more important as creditors. It is, therefore, unclear how this domestic situation should be assessed.72 Section 4.4 showed that considerable importance was also attributed to assigning future income for servicing loans. The use of such collateral and

71 Unless, of course, when they acquired a patent of nobility in the debtor’s country as happened with De Geer in Sweden and Marselis in Denmark-Norway. These patents were only provided, however, as an additional means of settling debts that had previously arisen. As such, patents and the associated formal and informal powers would probably only have been relevant in the case of future loans. 72 Kernkamp, Baltische archivalia, 91-95; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-22; Jørgensen, Det københavnske patriciat; Jørgensen, Rentemester Henrik Müller; Jespersen, Revolution from above.

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120  |  The economic consequences of the Dutch

the changes therein thus also deserve attention. Let us first take a look at the short-term loans. The first piece of evidence is given by the 40,000 daler loan with 12% interest agreed upon by Johan Fleming in 1564. No collateral was specified in the source and the King did not provide obligations of his own, but instead presented obligations that were supplied by Hamburg and Danish nobles. This suggests that investors did not put much faith in obligations from the King alone. The fact that no future income had been ear-marked for the redemption of this loan might suggest that it was not yet very usual for the Danish Kings to borrow in such a way. The process of assigning future toll income for debt servicing was put into use under statesman Corfitz Ulfeldt and in 1666 some Norwegian tolls were assigned for refunding the capital provided by Samuel Sautijn.73 The decrease in interest rates from 12% to 6% could have been the result of lower base rates in the Netherlands, but the fact that the debt was now funded must also have played a role as merchants would have considered the loan to carry less risk. Of course the King could still decide to renege. Since creditors could not foreclose tax revenue, this could still pose a problem. Depositing a large amount of valuable jewellery in Amsterdam, as was done in 1723, posed a solution to this problem since it reduced the risk of reneging and defaulting to a minimum as if it was necessary one could easily sell the jewellery to make back the loan money. Future income from tolls and taxes was also used when negotiating other loans. Conditions were especially strict when Dutch authorities provided the capital. For some of these loans the Norwegian and Sound tolls were pledged as collateral. It was stipulated that captains had to pay a certain amount of the toll before they left Holland and that they would be provided with a document stating this amount. In Denmark-Norway the vessels were subsequently inspected as usual. The document could be used to prove that a certain amount of the toll had already been paid in Holland and this amount was then discounted from the amount of toll that actually had to be paid. During the period 1658-1671 almost 920,000 guilders were collected in this way in the Dutch towns of Amsterdam, Hoorn, Enkhuizen and Medemblik. The Norwegian sources show that during the period 1 January – 1 November 1667 toll income in southern Norway amounted to 132,467 rd, of which 27,737 rd was collected in the Netherlands. During the period 1 January – 1 October 1668 these amounts were 255,999 rd and 66,000 rd respectively. In this way the Dutch authorities were guaranteed that the King would actually pay. If the tolls paid in the Netherlands exceeded the amount of interest that the Danish King was due, the remainder had to be remitted to Denmark.

73 Jørgensen, Det københavnske patriciat, 39-40.

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The integration of Denmark-Norway in the Dutch capital market  |  121

It sometimes happened that Dutch merchants, who also had a claim on the Danish King, requested to be paid from these surplus tolls.74 As time progressed assigning future income from tolls and taxes continued to be standard practice, and documents relating to the 1690 and 1700 loans document that one even experimented with VOC shares as collateral. This technique had been introduced in the early seventeenth century by Dutch merchants and was now also applied by the Danish King. The King purchased shares of the Amsterdam Chamber of the VOC and deposited these in Amsterdam. In the case of non-payment of interest, for example, the proceeds from selling these shares could be used to pay creditors. Having a highly liquid collateral present in Amsterdam would certainly have reduced the risks associated with providing credit.75 This general process of using more advanced financial techniques has its parallel in the transition from domain state to tax state that took place in Denmark during the seventeenth century.76 Besides the use of more or less secure collaterals (i.e. tolls and taxes) it also seems that there were fewer problems with the loans. Unlike during the seventeenth century, creditors were not forced to accept estates as payment during the eighteenth century. Also during the second half of the eighteenth century it happened occasionally that after a loan had matured, the principal could not be refunded. This meant that the loan had to be rolled over on expiry or that new loans had to be raised in order to pay the old one. But as long as interest was paid on these loans Dutch investors probably did not worry because they were looking for investment opportunities at this time. Besides the large capital supply, this was linked with the 1752 debt redemption of the States of Holland.77 Now let us try to calculate the additional premium for Denmark-Norway. Because the interest rates on the pre-1700 loans cannot be interpreted in a straightforward way – merchants and banking houses included different costs through trade margins, courtage and commission – this exercise has to be restricted to the loans provided by the eighteenth-century banking houses. This choice is also motivated by the fact that in this way only long-term loans are compared. Data are available for three points in time: the years 1700 and

74 Kernkamp, Verslag, 217-219, 333-334; Kernkamp, Baltische archivalia, 60-66, 95; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-22; Jørgensen, Rentemester Henrik Müller, 177-178. 75 Gelderblom and Jonker, ‘Completing a financial revolution’; Kernkamp, Verslag, 297; Kernkamp, Baltische archivalia, 111-113; Danish national archives, German Chancellery, Foreign Division, the Netherlands, boxes 70-16, 70-22, 70-26. 76 Ladewig Petersen, ‘Domain state to tax state’. 77 Riley, International government finance, 136-144; De Vries and Van der Woude, The first modern economy, 125.

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122  |  The economic consequences of the Dutch

1735/1765/1774 and the period 1775-1788. As was shown earlier, the situation regarding commission and courtage seems to have been identical throughout the eighteenth century, therefore the interest rates charged on these loans can be more easily used. An elaboration of the 1700 rate is required, though, since it has not been included in Figure 4.3 and because Appendix IV lists two interest rates. In addition, the 1700 case offers an interesting insight into the formation of interest rates.

Table 4.4

The additional premium on loans to the Danish Kings Year 1700 1735/1765/1774 1775-1788

Denmark-Norway 6.0% 5.0% 4.0%

Holland 3.0% 2.5% 2.5%

Additional premium 3.0% 2.5% 1.5%

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Source: Appendix IV; Gelderblom and Jonker, ‘Exploring the market’.

The sources that have been consulted show that getting a loan from Dutch creditors was preceded by a period of negotiation. This involved a representative of the King, who had to constantly consult his principal, and the Dutch banking house. The negotiations required the sending back and forth of letters with results and instructions. Unsurprisingly such negotiations took some time.78 In the case of the 1700 loan, which was eventually blocked by the Dutch authorities, negotiations had probably started one or two years previously. Evidence of nominal and real interest rates charged to the States of Holland shows that during this period both rates increased by about 1%. The banking house responded by also raising the rate to be paid by the Danish King by 1%. The King thus had to pay 6% instead of 5%. Creditors thus related the risk of lending to the Danish Kings to lending to the States of Holland. Note, however, that the additional premium attributed to the Danish King was 3% in both cases.79 From 3% in 1700, the additional premium attributed to the Danish Kings declined to 1½% during the second half of the eighteenth

78 See Kernkamp, Verslag, 297; Kernkamp, Baltische archivalia, 111-113; and Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-26, for the correspondence about the 1735 loan. The two main characters in this correspondence were Niels Griis, Danish diplomat in The Hague from 1717 until 1746, and Johan von Schulin, who worked at the German Chancellery in Copenhagen that handled contact with the Netherlands. See Holm, ‘Griis’; Holm, ‘Schulin’. 79 Kernkamp, Verslag, 297; Kernkamp, Baltische archivalia, 111-113; Danish national archives, German Chancellery, Foreign Division, the Netherlands, box 70-26.

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The integration of Denmark-Norway in the Dutch capital market  |  123

century. Since no new financial techniques seem to have been introduced during the period, this would suggest that the Danish Kings had gradually established a reputation as trustworthy debtors. Using future income from tolls and taxes and creating a perception of being a trustworthy debtor had thus enabled the Danish Kings to reduce the interest rates charged on their loans. Obviously the reduction from 6% to 4% enabled the Danes to increase borrowing by 50% while keeping interest payments constant. Figure 4.2 has shown, however, that borrowing had increased more than that during the seventeenth and eighteenth centuries. This leaves us with two possible explanations. Firstly, the figures could be biased by the fact that the preference for using the Dutch as state creditors may have increased. Tentative estimates for 1660 and 1784 may shed some light on this. Around 1660 the Danish state debt stood at about five million rigsdaler. Of this amount 1.7 million rigsdaler was in foreign hands. Figure 4.2 puts Dutch credits at this time at about 2 million guilders or about 800,000 rigsdaler, which would imply that the Dutch held around 16% of the Danish state debt.80 In 1784, however, the Dutch share in the state debt of Denmark-Norway seems to have been 41%.81 In relative terms the importance of the Dutch thus seems to have increased. Secondly, the Danes may not have used their full borrowing potential during the seventeenth century or their borrowing potential may have increased over time. In fact both of these things seem to have happened. Figure 4.5 shows that during the early 1640s the Sound toll yielded as much as during the late eighteenth century, but borrowing was much smaller. Also, only a specific part of the Norwegian and Sound tolls was used to raise loans in the Netherlands during the seventeenth century. As has been discussed earlier this concerned the tolls that were already paid by Dutch skippers before they left Holland. During the eighteenth century, however, it is likely that the entire toll was pledged. The effect of this was clear. Figures presented earlier showed that the Dutch share in the Norwegian tolls of 1667 and 1668 ranged between 21% and 26%. This meant that the borrowing potential was actually four to five times larger. Between the mid-seventeenth century and 1731, income from tolls seems to have declined – or returned to values more common during the preceding period – but during the period 1731-1799 income from the Norwegian and Sound tolls recovered and increased by a factor of 3.9 and 3.0 respectively (see Figure 4.5).82 Assigning the entirety of the tolls to Dutch creditors combined with the growth in income may have in-

80 Jespersen, ‘Estates and state finances’, 97. 81 Riley, International government finance, 138. 82 Other tolls levied in Denmark-Norway also increased rapidly during the eighteenth century. See Bosse, Norwegens Volkswirtschaft, I, 402, 410-413, and II, 7.

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4.4

124  |  The economic consequences of the Dutch

creased the total borrowing potential by a factor of between 12 and 15 after 1731. Combined with the reduction of interest rates and the increased preference for Dutch creditors, assigning a larger share of the tolls for debt payments and an increase in income can easily explain the spectacular increase in Dutch credit. The Norwegian and Sound tolls were thus valuable assets for Netherlands Denmark-Norway negotiating loans and it is therefore unsurprising to find that contemporaries additional risk premium D-N also linked income from additional these tolls to total state transaction costs D-Ndebt. Budgetary estimates around 1784 argued, for transaction example,costs thatN total income from the Sound tolls risk premium N came just short of being able base to rateservice the entire foreign debt.83

Figure 4.5 4.5

Income from the Sound toll (in millions of rigsdalers) 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 1560

1580

1600 1620 1640 1660 1680 1700 1720

1740 1760 1780

1800

Source: Degn, ‘The Sound toll’, Appendix 4.

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4.7. Conclusion Although the available literature on Dutch foreign investment has rightly pointed us to the phase in which investment in Denmark-Norway was at its peak, the present chapter has shown that Dutch capital had already made an impact much earlier than was previously thought. We have seen from investments in various semi-private companies and the Dano-Norwegian merchants that were studied in section 4.2 that during the seventeenth century the promise of future deliveries of goods, a good (family) network and a good reputation were necessary for getting credit from merchant houses

83 Riley, International government finance, 137 note 80.

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The integration of Denmark-Norway in the Dutch capital market  |  125

in Amsterdam. However, the Danish Kings found that there were also all kinds of difficulties associated with payments in kind (i.e. estates and goods). Forcing such payments (e.g. in estates) upon creditors made lending risky and borrowing expensive. As a result there were good reasons – both for debtors and creditors – to continuously search for methods that could make it easier to operate on the international capital market. From the moment that the Danish Kings first approached Dutch creditors we thus witnessed a process in which more advanced financial techniques and increasingly disciplined behaviour from Kings were used as a means of acquiring cheaper and greater credit. On the creditor side of the loans – a perspective that has often been ignored in this kind of research – at least two important changes were observed. The accumulation of capital in Dutch hands reduced base interest rates in Holland and the rise of Dutch banking houses during the eighteenth century also played a significant role as they reduced the transaction costs involved in tapping into the Dutch capital supply. The outcome of this twocentury interaction process between debtors and creditors was that Danish Kings could borrow from Dutch creditors at ever lower rates. In this respect the relatively low interest rates of the late eighteenth century do not come as a surprise. Although Dutch creditors may not have distinguished between all foreign governmental borrowers active on the Dutch capital market, it was clearly demonstrated that with respect to Danish debtors they distinguished between three groups: the monarchy, semi-private companies and planters. All three groups were assigned different risk premiums and subsequently paid different interest rates. This chapter also makes a contribution to the theories discussed in section 4.4. Multiple veto points were not a prerequisite for making the decrease in interest rates possible, but assigning future income to the servicing of debts did play a role. The eighteenth-century evidence presented in Table 4.4 furthermore suggests that historical behaviour also influenced contemporary risk premiums. It was also stressed that the creditor side of credits should be included in the analysis more explicitly. It has been shown that a decrease in base interest rates in Holland as well as a reduction in transaction costs played a role in bringing about the decrease in interest rates. Developments on both the creditor and debtor side thus integrated the financial markets of Holland and Denmark-Norway more closely and made it possible for DanoNorwegian merchants and Kings to obtain credit at ever lower costs.

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5   | Dutch foreign investment in a broader perspective

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5.1 Introduction In the previous chapter it has been shown how the links between merchants, semi-private companies and the monarchy in Denmark-Norway and the Dutch capital market grew stronger in the course of the seventeenth and eighteenth centuries. Merchants used supplies of timber, fish and copper to pay for the credit they received from their Amsterdam colleagues. The Danish kings, on the other hand, increasingly used future income from tolls and taxes in order to create a funded debt. Payments in estates and goods became less common and were no longer used during the eighteenth century. Specialised banking houses took over from large merchants and the Dutch authorities as creditors. However, it has not yet become clear how this process should be interpreted in a wider geographical context. The present chapter will therefore make a comparison with Dutch investment in England, the most important debtor of the Dutch. Important characteristics of credit such as size and types of Dutch investment in Denmark-Norway and England will be compared and analysed to see to what extent these were driven by key variables that are commonly held to determine size, direction and the type of capital flows in mod-

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Dutch foreign investment in a broader perspective  |  127

ern times. In addition, this chapter will establish the effects that the flows of Dutch capital had on these two North Sea economies and the integration of the international capital market. This chapter will proceed as follows. Section 5.2 will provide a general introduction to Dutch foreign investment and will reconstruct Dutch investment in England and compare it to investment in Denmark-Norway in absolute terms. It will be argued that the size of the receiving economy should be taken into account as a proxy for economic opportunities. Although this sharply reduced the absolute difference between both countries, section 5.3 will show that there was still an important difference in the shape that Dutch investments took. Some of the theoretical considerations of these differences will be discussed and section 5.4 will subsequently determine to what extent these can explain the Dutch investment pattern during the seventeenth and eighteenth centuries. After this, section 5.5 will analyse the importance of Dutch capital for the receiving economies and the effects that these capital flows had on the integration of international capital markets. Section 5.6 will summarize and conclude.

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5.2 Reconstructing and comparing Dutch foreign investments During the sixteenth and seventeenth centuries a lot of capital had accumulated in Dutch hands due to their success in trade. The owners of these sums reinvested their money in trade, but also invested in things such as real estate, fine art, jewellery, company shares (VOC, WIC and foreign companies), domestic and foreign bonds and private debts. Some money was also held in cash and in bank accounts (Amsterdam’s Wisselbank). Securities increasingly became the favourite destination for surplus capital. Holland’s public debt, which had increased spectacularly during the seventeenth and eighteenth centuries, was a particularly popular destination. Some examples may illustrate the general features. Bonds of the States of Holland were not part of the estate of Amsterdam merchant Anthoni Thijs (1634), but he did possess a substantial number of VOC and WIC shares. In 1682 Louis Trip had invested 42% of his capital in VOC shares and bonds. Evidence relating to Receiver General De Jonge van Ellemeet and his family indicates that for the typical rich bourgeois this share may have increased during the late seventeenth and early eighteenth centuries. Research into the composition of fortunes on the



See Tracy, A financial revolution; Dormans, Het tekort; ’t Hart, ‘The merits’; and Liesker and Fritschy, Gewestelijke financiën, for a history of this debt.  Gelderblom, Zuid-Nederlandse kooplieden, 208.  Dormans, Het tekort, 172-173.

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128  |  The economic consequences of the Dutch

deaths of members of the town council (vroedschap), relatives of regents and rich burghers in the towns of Leiden, Gouda and Hoorn shows which assets these people had invested their money in during the period 1700-1780. Bonds and shares attracted about 76% of their capital and the bonds of the States of Holland constituted an important part of this (about half of the total fortune). It should not be forgotten, however, that these holding shares were not static. We can differentiate between two groups of security holders whose reasons for these investments differed. Rentiers were only interested in the long-term annual interest/dividend payments, whereas others used these securities to speculate or temporarily store money while cashing some interest/dividends on the side. Around the mid-eighteenth century, for example, Jan Isaac de Neufville changed the share of his money invested in bonds and shares (15%-50%), trade (10%-50%) and real estate in function of the opportunities present in trade.

Figure 5.1 5.1

Dutch foreign investment, 1710-1800 (in millions of Dutch guilders) 800 700 600 500 400 300 200

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100 0 1710

1720

1730

1740

1750

1760

1770

1780

1790

1800

Source: De Vries and Van der Woude, The first modern economy, 120-121; note 11. Note: The authors have determined the net annual increase of Dutch lending, which means that their figures do not include refinanced or extended debts. The figure includes foreign government loans, the three large English joint-stock companies and plantation loans.

5.2 280 240  De Vries and Van der Woude, The first modern economy, 591.  200Fritschy, ‘A “financial revolution” reconsidered’; Gelderblom and Jonker, ‘Completing a 160financial revolution’.  Dormans, Het tekort, 174. 120 80 40 0 1690

1700

1710

1720

1730

1740

1750

1760

1770

1780

1790

1800

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Dutch foreign investment in a broader perspective  |  129

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Investors did not restrict their investments to Holland or the Republic alone – large sums of money also found their way abroad. One relatively early example concerns the estate of Amsterdam mayor Jeronimus de Haze de Georgio (1725), which contained 2.23 million guilders of foreign – mainly English – shares and bonds. On his own he was responsible for about 5% of the Dutch holdings of English funds. Reasons for investing abroad included a combination of higher interest rates, trustworthy securities/debtors and portfolio diversification. In their account of Dutch economic history, De Vries and Van der Woude also included a survey of Dutch foreign investment. Their results, which are presented in Figure 5.1, indicate that the stock of Dutch capital invested abroad increased from almost nothing during the early decades of the eighteenth century to well above 700 million guilders by 1800. In constructing their figures De Vries and Van der Woude have put Dutch foreign investment at nothing in 1713 and they have drawn on publications by Riley and Van de Voort to reconstruct these investments during the course of the eighteenth century. Riley discussed Dutch investment in foreign governmental loans. He made benchmark estimates of the size of these investments for the years 1763, 1770, 1780 and 1790. The three large English jointstock companies were included herein since these were the government’s vehicles for managing the public debt. Although Riley actually estimated the most likely range of Dutch investments, he chose to present the mean values of these ranges as the most plausible size of Dutch holdings.10 De Vries and Van der Woude have used these mean values to determine the net annual increase of Dutch investments. They followed a similar procedure with Van de Voort’s data, which relate to the West-Indian plantation loans.11

 Van Nieuwkerk, Hollands gouden glorie, 145-146; Appendix VII.  Carter, Getting, spending and investing, 30, 51; Dormans, Het tekort, 172-174; De Vries and Van der Woude, The first modern economy, 590-592. The available evidence on interest rates in the regions that will be studied later in this chapter is fragmented. See ’t Hart, ‘The merits’, 19; Dehing and ’t Hart, ‘Linking the fortunes’, 53; and Gelderblom and Jonker, ‘Exploring the market’, for Holland, Clark, ‘Land hunger’, 74, for England and Chapter 4 for Denmark-Norway.  De Vries and Van der Woude, The first modern economy, 120-121; Van de Voort, Westindische plantages, 102-103; Riley, International government finance, 84, 221. 10 Plantation loans were not included, however. See Riley, International government finance, 16 notes 30 and 33, 83 note 1. 11 It should be noted, though, that De Vries and Van der Woude have not been fully accurate in using the data on plantation loans. Van de Voort, Westindische plantages, 102-103, gives a total investment of 62,799,657 guilders for the period 1753-1775, or an average annual increase of around 2.8 million guilders. De Vries and Van der Woude have used this figure for their entire 1752-1779 period whereas they should have used a yearly value of around 2.2 million guilders per year instead. In addition, they have not taken into account the amount of 6,471,585 million guilders provided during the period 1776-1794 as given by Van de Voort, Westindische plantages, 180 note 1. Figure 5.1 makes use of Van de Voort’s original figures, which have been adjusted to the periodisation used by De Vries and Van der Woude.

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130  |  The economic consequences of the Dutch

Table 5.1

Dutch holdings of foreign government loans (in millions of Dutch guilders and percentages) Year 1763 1770 1780 1790

Total 200 250 350 575

English Other foreign % English % Other foreign 205 255 265

45 95 310

82% 73% 46%

18% 27% 54%

Source: Riley, International government finance, 84, 221.

Table 5.2

Geographical distribution of Dutch foreign investment at the end of 1771 (in millions of Dutch guilders and percentages) Debtor Amount Share in total Austria 23.4 8.0% Denmark-Norway 21.1 7.2% Dutch plantations 22.2 7.6% England 205.0 70.1% German states 9.8 3.3% Russia 3.0 1.0% Spain 1.3 0.4% Sweden 6.4 2.2% Total 292.2 100.0% Source: Dormans, Het tekort, 176-178. Note: Dormans, Het tekort, 178, refers to Riley, International government finance, 84, for investCopyright © 2008. Amsterdam University Press. All rights reserved.

ment in England but uses 200 million guilders instead of Riley’s 205 million guilder figure. The present table uses Riley’s original figure.

Unfortunately, Figure 5.1 does not differentiate between receiving countries. Riley did differentiate between English and other foreign governmental debtors (see Table 5.1), but he did not explicitly mention in his own summary Table who the other recipients were. Denmark-Norway, for example, accounted for 21.6 million guilders in 1781 and 16.9 in 1788 and for Sweden these figures were 10.3 (1780) and 16.0 (1790).12 Table 5.2, which presents an esti-

12 Riley, International government finance, 138, 148.

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Dutch foreign investment in a broader perspective  |  131

mate compiled by Dormans of Dutch foreign investments at the end of 1771, sheds some light on the other debtors. The figures were based on a contemporary summary of loans negotiated until 1771 and not only included (part of) the capital invested in the above-mentioned government and plantation loans but also the capital that was invested in other ventures. Dormans used Riley’s estimate of investment in the English government debt and jointstock companies. Table 5.2 confirms England’s dominance, but also shows that around 1771 Austria, Denmark-Norway and the Dutch plantations attracted quite considerable sums.13 Clearly, the evidence available for Dutch foreign investments is fragmented and the series constructed by De Vries and Van der Woude has been based on six benchmark estimates that have been interpolated. Obviously a series with actual annual values would be preferred, but constructing such a series for all recipients of Dutch capital is, as yet, impossible. In Chapter 4, such figures were reconstructed for Denmark-Norway (Figures 4.1 and 4.2). A combination of older and more recent publications has made it possible to construct a similar series for England as well. Appendix VII discusses the construction of this series in detail. It is important to note here that these publications have made benchmark estimates for various years of Dutch investment in the different funds based on the original share and bond ledgers. The series that is constructed here is therefore based on the most accurate data that are available. Since this series concerns the funded debt as it existed from the 1690s onwards, the following will briefly discuss earlier credits. Wilson, who summarized the Dutch loans made to the English monarchy during the seventeenth century, concluded that Dutch capital did not play a very important role during this period. He could only cite a few cases in which loans were made to the English monarchs. In 1625 the English ambassador sought advances from the States General. This attempt resulted in a sum of 650,000 guilders being put forward, which was largely paid by Louis de Geer. In 1629 almost the whole debt remained unpaid and only £10,000 had been repaid by 1631. The crown jewels were pawned in 1625 and in 1634 more jewels were sold and others redeemed. In the case of the former, redemption was postponed for eleven years. In 1642 the English queen received considerable sums through pawning jewels: 400,000 guilders from the Rotterdam Loan Bank, 300,000 guilders from the Stadtholder

13 Dormans, Het tekort, 176-177. Since Dormans’ figures include plantation and other loans his figures differ from Riley’s estimate of Dutch foreign investment. Dutch investment in English plantations is not taken into account because Dormans used Riley’s estimate, which only includes Dutch holdings of government debt. Van de Voort, Westindische plantages, 107-108, 292-293, presents two loans provided by Hope & Co. in 1770 to the total amount of 460,000 guilders. In addition, Van de Voort’s study puts investment in Danish plantations about 1.5 million guilders above Dormans’ source.

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132  |  The economic consequences of the Dutch

and 50,000 guilders from the States General. The loan was to be paid back in six years but when the loan period expired the Loan Bank had not received any interest so the jewels were sold. The Loan Bank lost 42,500 guilders on this transaction. During the first half of the seventeenth century the Dutch also had a stake in the East India Company and Dutch capital was involved in the drainage of Hatfield Chase.14 The post-1688 period also saw some loans to England that were provided by the States General. In 1695 the Bank of England collected £300,000 from the States General: £100,000 for twelve months and £200,000 for a maximum of six years. The Dutch ambassador received tallies and impositions for these amounts. Later that year tallies to the value of £80,000 or 800,000 guilders were provided for another loan and between 1697 and 1700 a further £215,097 was provided. Wilson estimates that credit – backed by the States General – provided to England before 1700 amounted to about one million pounds. This does not take into account the sums that were provided by other parties.15 Figure 5.2, which summarizes the data collected in Appendix VII, shows that Dutch investment in semi-private companies, government debt and plantations was rather small at the close of the seventeenth century. By 1700 only about one and a half million guilders had been invested in English funds. We have to take into account, though, that these figures do not include the credit that has been discussed in the previous paragraph. From around 1710 Dutch investors bought continuously increasing quantities of English securities and during the 1730s ownership amounted to 50 million guilders and more. Investments continued to grow and the 100 million guilders mark was reached around 1750 and the 200 million guilders mark during the late 1760s. Until the late 1760s the new data do not much differ from established historical wisdom. Riley’s estimated 205 million guilders in 1770 differs from the new estimate of 190 million, but it almost equals the 206 million found for 1769. However, the following decades show a large difference between the new and old estimates. This can most likely be attributed to the fact that Riley’s estimates for 1780 and 1790 were simply too high.16 This may have been caused by the fact that Riley largely based his estimates of Dutch investment in English funds on the size of the total government debt, which continued to increase during these years. Other historians and eighteenth-cen-

14 Wilson, Anglo-Dutch commerce and finance, 88-95. 15 Wilson, Anglo-Dutch commerce and finance, 88-95. 16 It should also be remembered that Riley, International government finance, 83 note 1, actually gave ranges of Dutch investment in England. These ranges were 175-235, 220-290 and 230300 million guilders for 1770, 1780 and 1790 respectively. The new estimate for 1770 fits within this range, but the new estimates for 1780 and 1790 are much lower.

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Dutch foreign investment in a broader perspective  |  133

tury 5.1 observers, however, usually speak of a large withdrawal of Dutch capital from English funds at this time. Instead, substantial sums were provided to a 800 whole range of other foreign debtors including France, West-Indian plantation holders, Poland, Spain, the United States, Russia, Denmark-Norway and 700 Sweden.17 As my new estimates have been based on samples taken from the 600 English share and bond ledgers, they are more reliable and represent actual actual 500 Dutch investment better. The new estimates do highlight the considerable disinvestment during the 1770s and early 1780s. 400 The reconstruction of Dutch investment in Dano-Norwegian funds made in300 Chapter 4, shows that these investments had already started much earlier than in the English case and it was argued that during the second half of the 200 seventeenth century a maximum of 3-3½ million guilders may have been out100 standing. At the same time that the Dutch started to invest in English funds, investments in Dano-Norwegian funds seem to have declined and only in0 creased again the mid-eighteenth Although 1710 1720from1730 1740 1750 century 1760 onwards. 1770 1780 1790 Dutch 1800investment in England had thus started later, it soon exceeded the amount of capital invested in Denmark-Norway.

Figure 5.2 5.2

Dutch investment in England, 1690-1800 (in millions of Dutch guilders) 280 240 200 160 120 80

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40 0 1690

1700

1710

1720

1730

1740

1750

1760

total Dutch investment

1770

1780

1790

1800

old estimate

Source: Appendix VII; Van de Voort, Westindische plantages, loan nos. 11-13, 22-36, 62-63, 87, 92, 96-98, 105, 132-133, 137, 141; Riley, International government finance, 84, 221; De Vries and Van der Woude, The first modern economy, 120-121. 5.3 Note: This Figure includes holdings of government debt, company shares and plantation loans.

2.25% 2.00% 1.75% 17 1.50% See, for example, Dickson, The financial revolution, 311-312; Carter, Getting, spending and investing, 23-52; Riley, International government finance; Dormans, Het tekort, 178-180; and 1.25% De Vries and Van der Woude, The first modern economy, 144. 1.00% 0.75% 0.50% 0.25% 0.00% 1620

1640

1660

1680

1700

Denmark-Norway

1720

1740

1760

1780

1800

England

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134  |  The economic consequences of the Dutch

These absolute data, however, cannot be taken at face value. In studies in the field of financial geography that focus on international capital flows the gravity model is the accepted methodology to describe the geographical dispersion of foreign investments.18 A gravity-type model takes the size or econ­omic opportunities (i.e. gross domestic product or GDP) of and distance between sending and receiving economies into account, and it also allows for the inclusion of a range of host and source country characteristics.19 Distance is used as a proxy for informational frictions and correlates negatively with foreign investment. But since the distance between the sending (Amsterdam) and receiving markets (Copenhagen and London) did not differ much, distance would not have been responsible for the large difference in total Dutch investments. The distance to alternative capital markets other than Amsterdam was also roughly the same for London and Copenhagen. The size of sending and receiving economies thus seems to be a better way of explaining these differences. It has been found that, on average, a country invests more money in absolute terms in a large neighbouring economy (A) than in a small neighbouring economy (B). The logic behind this is that if A and B both need to finance a 1% deficit, this deficit will be larger in absolute terms in A than in B, so under similar conditions, A will attract larger sums from the source country than B will. Since in the present case both the DanoNorwegian and English markets received capital from the Netherlands, only the size of these two receiving countries themselves matters here. The gravity model would thus predict England to be the major attractor of capital simply because it had a large economy. But what happens when we actually relate Dutch investment to the size of both economies? This can be done using Maddison’s GDP figures for England and Wales (1600, 1700 and 1801) and Denmark and Norway (1600, 1700 and 1820) in order to determine GDP for each year in between.20 Figure 5.3 suggests that the need to borrow and the extent to which the Dutch capital market was approached for this differed for each country. England’s rise as

18 Garibaldi et al., ‘What moves capital’; Sarisoy Guerin, ‘The role of geography’; Daude and Fratzscher, ‘The pecking order’; Campos and Kinoshita, ‘New evidence’; Lane and MilesiFerretti, ‘International investment patterns’; Portes and Rey, ‘Determinants’. 19 For the gravity model also see Brakman, Garretsen and Van Marrewijk, Geographical economics. 20 Maddison, A millennial perspective, 247, 261. Maddison, World Population, uses similar figures for the United Kingdom (and Denmark and Norway), but does not distinguish between the constituent countries. GDP figures were interpolated using the respective annual growth rates of each country’s GDP. The figures for Denmark and Norway were then added up. Since Maddison’s GDP figure for England also included Wales, the population distribution over England and Wales in 1801 as given by Wrigley and Schofield, Population history of England, 577, was used to determine England’s GDP.

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300 200 100

Dutch foreign investment in a broader perspective  |  135

0 1710

1720

1730

1740

1750

1760

1770

1780

1790

1800

an economic and political power during the eighteenth century meant that it steadily attracted more and more Dutch capital per unit of GDP. Figure 5.3 indicates that during the late 1760s a peak of 1.6% of the GDP was reached. As will be discussed in more detail later, the maximum share of the Dutch in the English government debt amounted to just under 16% during the late 1750s. 5.2 As Wilson and Carter have shown, the involvement of such amounts of capital280aroused debate amongst English and Dutch observers. Contemporaries apparently deemed Dutch investment shares to have reached high values.21 240 Given 200 the fact that England is usually considered to have been a trustworthy debtor at this time, it is surprising that the respective figures for Denmark160 Norway were higher and increased rapidly from the 1760s onwards. Figure 120 5.3 estimates Dutch investment at 2.1% of the Dano-Norwegian GDP at their 80 peak and during the 1770s and 1780s Dutchmen held approximately 55% of 40 the Danish government debt. Given the large difference with the English val0 ues, the question could be raised as to why Dutch investors were willing to 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800 invest so much so fast in Denmark-Norway. total Dutch investment

old estimate

Figure 5.3

GDP-corrected Dutch investments in England and Denmark-Norway (Dutch guilders ÷ 1990 Geary-Khamis dollars)

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5.3

2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% 1620

1640

1660

1680

1700

1720

Denmark-Norway

1740

1760

1780

1800

England

Source: Appendix VII; Chapter 4; Wilson, Anglo-Dutch commerce and finance, 89-90; note 20. Note: The 1625 and 1642 loans provided to England were also included. For the former the 1631 redemption was taken into account and it was assumed that from 1631 onwards the loan was 5.4 redeemed within five years. For the latter the six-year loan period has been used.

100% 80% 21 Wilson, 60% Anglo-Dutch commerce and finance, 78, 108, 190; Carter, Getting, spending and investing, 20-41.

40% 20% 0% 1694

1704

1714

1724

1734 debt

1744 equity

1754

1764

1774

1784

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136  |  The economic consequences of the Dutch

The answer to this question probably lies in the fact that the Danish kings charged a toll in the Sound and could offer this income as collateral for loans. The Sound toll represented an ‘external’ source of revenue since there was no connection to the economic prosperity of Denmark itself. Other states mainly taxed the wealth, consumption and trade of their own economies. Fritschy has shown for the Netherlands, for example, that the opportunity for the Dutch government to spend increasing amounts of capital during the late sixteenth and early seventeenth centuries depended on the taxation of the domestic economy.22 The Sound toll, however, depended principally on the flourishing of the foreign trade of other countries. Given the lack of an English equivalent of the Sound toll, England depended solely on the taxation of its own economy. The extraordinary source of income from the Sound toll thus allowed the Danish kings more or less to rush ahead of the development of the domestic economy and capital market, and look abroad in order to negotiate large loans.23 Another important feature of Figure 5.3 is that it shows that the overall picture of Dutch foreign investments should have its nuances taken into account. The fact that England’s economy was much larger than the combined economies of Denmark and Norway clearly had important implications. Taking the size of the receiving economies into account, the initial differences in absolute amounts of money which were borrowed in Holland become much smaller. It is true that from around 1710 to about 1760 the English borrowed relatively more than the Danes, but during the seventeenth and early eighteenth centuries as well as during the 1770s, 1780s and 1790s DenmarkNorway borrowed more relative to GDP than England. Although the actual peaks in Dutch financing (i.e. per unit of GDP) differed, Figure 5.3 shows that the ability to attract Dutch capital to finance government and commercial undertakings was more comparable for Denmark-Norway and England than the absolute figures would suggest. Thus the growth of the English economy did not exert a negative effect on the other North Sea regions in the sense that Dutch capital no longer was available to them (i.e. there was no crowding out). Although this shows that Dutch foreign investments around the North Sea were more evenly distributed than previously thought, there still were important differences as well. Section 5.3 will look at the form that these Dutch investments took and it will be seen that there were some noticeable differences in the ways that Denmark-Norway and England attracted capital.

22 Fritschy, ‘A “financial revolution” reconsidered’. 23 See Chapter 4 for the use of the Sound tolls in negotiating loans in the Netherlands.

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Dutch foreign investment in a broader perspective  |  137

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5.3 Types of Dutch foreign investment Although Chapter 4 did not explicitly classify foreign investments, it did distinguish between types of debtors (private and semi-private companies and the king) and creditors (large merchants, various Dutch authorities and banking houses). Economic theory, however, also differentiates between two other characteristics of credit: maturity and management control. Although there thus are four elements that characterise credits, we are mainly interested in management control here.24 The literature differentiates between direct and indirect investment. Whether an investment is direct or indirect depends on whether the foreign enterprise is largely owned and controlled by the investor. An ownership criterion of 10% is normally used for this. Direct investment usually requires direct input of managerial skills, trade secrets, technology, etc. Often this means that one also has to settle abroad. In contrast to indirect investors, direct investors are not necessarily driven by reasons of direct return or portfolio diversification alone. Location factors (e.g. resource availability, economies of scale and political barriers) are also of great importance when choosing direct investment. Since direct investment refers to ownership of a company it is about holding 10% of the shares or equity capital of a company. Direct investment therefore does not include other types of credit such as loans and debt instruments (see below). In the present study direct investment is not of much importance for several reasons. Firstly, one cannot own a government by purchasing its stock. Secondly, until well into the nineteenth century foreigners were not allowed to acquire property (i.e. unmovable goods) in England.25 Thirdly, whereas it was possible to acquire management control in the large semi-private companies of the time by purchasing shares it was almost impossible to own 10% of their stock. The book value of Dutch VOC stock, for example, amounted to about 6.5 million guilders and during the 1720s the book values of the Bank of England and English East India Company were £5.6 million and £3.2 million respectively. The 10% threshold was simply too high to allow a single person to own 10% of the stock. Even within the Danish Asiatic Company with its more modest stock size it proved difficult to own this much of the Company. At its start in 1732 the stock amounted to 400 shares of 250 rigs-

24 The discussion of the types of foreign investment is based on Mishkin, Money, banking, and financial markets; Krugman and Obstfeld, International economics; and Pugel, International economics. 25 Cottret, Huguenots in England, 51. Foreigners could of course arrange for Englishmen to hold property for them, but such informal arrangements could turn out to be problematic when troubles arose between the partners since such informal arrangements had no value in court.

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138  |  The economic consequences of the Dutch

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daler each, bringing the total to 100,000 rigsdalers. The largest shareholder – Johan Henrik Desmercières26 – held 42 shares, only just over the 10% criterion. In later years the stock size increased eightfold, which would have made it similarly impossible to hold 10% of the stock. In 1753, therefore, the largest holder – still Desmercières – only held 77 of the 1,600 shares. Additionally, large blocks of shares had to be held in the English companies in order to be able to vote and even larger blocks to be voted into a position of power. In the case of the Dutch VOC the size of one’s holding did not formally play a role since its governors were chosen by the board and local government. At face value in was perhaps easiest to acquire a position within the Danish Asiatic Company. Of the five directors of the Danish Asiatic Company, the shareholders elected three. The voting rights were related to the amount of shares held, but the voting rights of the large shareholders were curtailed.27 Indirect investments are usually divided into loans and portfolio investment and in turn there also are two types of portfolio assets. When the rate of return is fixed beforehand regardless of economic performance, economists speak of a debt instrument and the creditor receives interest. When the payoff depends on economic circumstances we speak of equity instruments and the creditor receives dividends. Portfolio assets generally involve multiple lenders, whereas a loan is usually a bilateral agreement. Note that since one cannot own a government, governmental borrowing can only take the form of debt instruments and loans. Private and semi-private credits, however, can take all four forms just discussed.28 Now let us take another look at the data that have been discussed in section 5.2. The seventeenth-century credits that were provided to DenmarkNorway and England were most likely bilateral transactions and have therefore been considered as loans. The eighteenth-century credits that were extended to the Danish government, however, should be placed in the debt category. Although these credits were negotiated with Amsterdam banking houses, these houses chiefly functioned as managers of the debt. One of their

26 Holm, ‘Desmercières’. 27 See De Korte, Jaarlijkse financiële verantwoording; Glamann, ‘Danish Asiatic Company’, 110-113; Gaastra, Geschiedenis van de VOC; De Korte, Annual accounting; and Carlos, Neal and Wandschneider, ‘Networks’, on stock size and Clapham, Bank of England, I, 274, 279, 282 note 2, 283-284; Glamann, ‘Danish Asiatic Company’, 112; Bowen, ‘Investment and empire’, 191-194 (also note 50), 198-199 (also note 75), 201; Gaastra, Geschiedenis van de VOC, 31; Buchan, ‘East India Company’, 53, 58 (also note 2); and Bowen, Business of empire, on voting rights. The Marselis family – just like the De Geer family in Sweden – did invest in Norwegian mining and they probably met the 10% criterion, but it is difficult to establish the value of the associated amounts. These investments will therefore not be discussed. See De Boer, ‘Celio Marselis’; Lauridsen, Marselis konsortiet, 101-117. 28 Gelderblom, Merchants in the Low Countries, Chapter 6, presents a summary of the contemporary terminology and techniques.

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Dutch foreign investment in a broader perspective  |  139

tasks was to place the loan with the public and arrange interest payments. This was done by distributing a certain number of obligations on which a stipulated interest rate was paid. Similarly the capital lent to the Bergen and Copenhagen sugar refineries, the Asiatic Company, the Bank, the West India Trading Company and plantation owners should be considered to be debt instruments. Shares of the Asiatic Company and the three large English companies – the Bank of England, the East India Company and the South Sea Company – obviously fit into the equity category. English government bonds and plantation loans have been placed in the debt instrument category. The results are presented in Table 5.3.

Table 5.3

Dutch investments in England and Denmark-Norway divided by type (in millions of Dutch guilders and percentages), 1630-1800 Year

England Denmark-Norway Equity Debt Loans Total Equity Debt Loans 0.6 0.0% 0.0% 100.0% 0.2 0.0% 0.0% 100.0% 0.2 0.0% 0.0% 100.0% 0.5 0.0% 0.0% 100.0% 0.4 0.0% 62.5% 37.5% 2.0 0.0% 92.4% 7.6% 2.0 0.0% 73.3% 26.7% 1.5 0.0% 91.1% 8.9% 2.3 0.0% 57.9% 42.1% 1.4 100.0% 0.0% 0.0% 2.2 0.0% 51.3% 48.7% 4.2 100.0% 0.0% 0.0% 32.7 100.0% 0.0% 0.0% 52.1 94.8% 5.2% 0.0% 0.0 0.0% 0.0% 100.0% 68.8 85.0% 15.0% 0.0% 0.1 0.0% 100.0% 0.0% 110.0 68.4% 31.6% 0.0% 153.0 47.9% 52.1% 0.0% 0.0 0.0% 100.0% 0.0% 189.6 44.2% 55.8% 0.0% 29.5 2.7% 97.3% 0.0% 148.2 39.2% 60.8% 0.0% 39.5 0.5% 99.5% 0.0% 163.4 37.1% 62.9% 0.0% 21.5 0.0% 100.0% 0.0% 2.7 0.0% 100.0% 0.0%

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Total 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800

Source: Appendix VII; Chapter 4. Note: The table includes government debt, the debt and equity instruments of semi-private companies and plantation loans. The 1650 figure for England represents loans outstanding in 1648. In Chapter 4 it was shown that Dutch authorities also provided credit, but it was argued that they were only involved in negotiating these loans in order to place bonds with the larger Dutch public. Therefore these credits were placed under debt instruments instead of loans.

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0.25% 0.00% 1620

1640

1660

1680

1700

1720

1740

1760

1780

1800

140  |  The economic consequences of the Dutch Denmark-Norway

England

Figure 5.4

5.4

Dutch holdings of English equity and debt instruments, 1694-1791 (in percentages) 100% 80% 60% 40% 20% 0% 1694

1704

1714

1724

1734 debt

1744

1754

1764

1774

1784

equity

Source: See Appendix VII.

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5.5

Table 5.3 shows that during the seventeenth century England and DenmarkNorway mainly attracted Dutch capital through loans. Denmark-Norway also 3.0% attracted capital through debt instruments, but the use of loans was also con2.5% tinued until the first decades of the eighteenth century. At this time, however, Dutch investment in England was in the form of equity only. Yet, as the 2.0% eighteenth century progressed, debt instruments became more important. During the late 1750s holdings were distributed evenly between equity and 1.5% debt instruments, but by 1790 the ratio between the two had been reduced to 1.0% 1:2. This was still considerably higher than in Denmark-Norway where equity was of minor importance and only played a modest role around 1770. Figure 0.5% 5.4 displays the English shift from equity to debt instruments in more detail. 0.0%Despite the fact that correcting for GDP made differences in Dutch holdings securities smaller, shows1780 that 1790 there were 1690of foreign 1700 1710 1720 much 1730 1740 1750Table 17605.3 1770 1800 still important differences inEngland the type of investment that England and Denmark atDenmark-Norway tracted. England received far more equity investments than Denmark-Norway. It has to be noted, though, that to some extent at least, this difference is artificial. The equity instruments under consideration – the shares of the three large companies – were closely related to the government debt. The three 5.6 major English joint-stock companies – the Bank of England, the East India Company and the South Sea Company – received their respective trading or 60% banking monopolies by providing large loans to the English government. Each company collected the necessary sums by selling company stock to investors. 50% Whereas the chartered companies received a certain annual interest from the 40% government, the investors in company stock received dividends. Their returns 30%

20% 10% 0% 1690

1700

1710

1720

1730

1740

England

1750

1760

Denmark

1770

1780

1790

1800

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thus largely depended on the economic performance of the respective companies and are thus labelled as equity investments. In the case of the South Sea Company, government debt was also swapped for company shares.29 A score of empirical financial-geographical studies have been dedicated to identifying the variables that determine the form that foreign investments take.30 By performing statistical tests these studies have tried to establish how sensitive the different types of investment are to variables that proxy for informational frictions, the quality of institutions, the development of capital markets and initial conditions.31 While different sources are used, various time periods and regions are studied and despite the fact that every study assigns importance to a different variable, they corroborate each other’s main findings. Although all types of investment are sensitive to having access to good information, this is particularly so in the case of loans and foreign direct investment. Well-developed capital markets and good institutions are crucial for attracting portfolio investment. By including variables representing such elements, these studies are able to explain a large number of the differences in current investment patterns. Unfortunately, however, these empirical studies only discern between portfolio investment, foreign direct investment and loans. This means that they do not differentiate between equity and debt instruments. Theoretically this could imply that Dutch investment in Denmark and England was driven by comparable variables and that the Danish and English host country characteristics were consequently quite similar. Nonetheless, the latter does not seem to have been the case. Section 5.4 will therefore explore this topic in more de-

29 See Scott, Constitution and finance; Clapham, Bank of England; and Dickson, The financial revolution, for details. 30 Some of them focus on one type of investment only, while others include them all at the same time. Garibaldi et al., ‘What moves capital’; Sarisoy Guerin, ‘The role of geography’; and Daude and Fratzscher, ‘The pecking order’, include both, whereas Campos and Kinoshita, ‘New evidence’; Lane and Milesi-Ferretti, ‘International investment patterns’; and Portes and Rey, ‘Determinants’, only look at one. 31 The following variables are often included: (1) telephone traffic, trade in newspapers and periodicals, time zone differences and shared borders, colonial links and common language and legal origin; (2) rule of law (e.g. property rights, expropriation risk and corruption), bureaucratic red tape and investment restrictions; (3) the existence, capitalisation and development level of stock markets, liberalisation, returns, exchange rate volatility and inflation; (4) natural resource endowment and wage levels.

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142  |  The economic consequences of the Dutch

tail for the eighteenth century. Since (bilateral) loans were mainly significant in the seventeenth century, these will not be discussed any ­further.32

5.4 London, Copenhagen or Amsterdam?

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The major difference between Dutch investment in England and DenmarkNorway was that initial purchases of English funds were made in London whereas Danish funds were put on the market in Amsterdam.33 Since empirical studies argue that the presence and size of a domestic capital market is an important determinant for attracting foreign portfolio investments, this could mean that such a market was small or even lacking in Denmark. The fact that welfare ratios and GDP per capita were higher in England than in Denmark may suggest that more surplus capital was indeed available in England.34 But does this also mean that a developed capital market was present in England and absent in Denmark? The number and size of joint-stock companies is illustrative of the relatively late development of the Danish capital market. Stancke’s research into the Danish stock market has resulted in a complete overview of the stock size

32 This discussion will largely centre on the development level of the respective domestic capital markets of Denmark-Norway and England, because discussing institutions properly would require a detailed case-study. The procedure followed by Acemoglu, Johnson and Robinson, ‘Rise of Europe (NBER)’, and Acemoglu, Johnson and Robinson, ‘Rise of Europe’, in order to construct indices for constraints on executive and protection for capital is therefore inaccurate. This does not mean that institutions are regarded as insignificant. It has already been noted that English government regulations prevented foreigners from holding real estate and with regard to plantation loans another point could be raised. Due to institutional barriers in the foreign colonies Dutch investments in plantations were initially directed primarily towards the Dutch colony of Surinam. In 1767 Denmark removed a lot of these institutional barriers and in doing so enabled planters to use their produce to negotiate loans in Amsterdam since their goods could now be shipped directly to Holland. As such they provided valuable collateral for Dutch creditors. Similar restrictions also existed in the English and French colonies – in the latter it was even explicitly forbidden to export directly to foreign destinations – and consequently Dutch capitalists lent much less to them than to their Danish colleagues. Perhaps the English were able to finance their plantations domestically to a greater extent, but this seems to contradict the large Dutch involvement in other English funds and the fact that English planters needed well-known English trading houses to guarantee their loans. The latter was required because they were not allowed to use their produce as payment. As it was therefore much easier to lend to Danish planters, the Dutch directed almost 80% of their investments in foreign plantations towards the Danish Islands. See Van de Voort, Westindische plantages, 9-10, 89-90, 103, 106-107, 186187, 265. 33 We will see in the following section that some English funds were also traded on the Amsterdam Exchange, but the initial ownership rights were still originally purchased in London. 34 See Maddison, A millennial perspective, 247, 261, and Maddison, World Population, for GDP per capita and Chapter 3 for welfare ratios.

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of different companies.35 This study shows that the number and size of jointstock companies that were traded on the Exchange was rather small. Only from around 1730 did this segment start to develop. The maximum number of companies quoted at any one time was seven, but quotations of five or six companies were more common. In this respect the English market was much more developed. During the seventeenth century there were already many joint-stock companies. Scott, the historian of the English joint-stock companies, estimates that around 1695 there were 93 such companies with an outstanding stock of just over four million pounds. This includes the East India Company and the Bank of England, which represented a share capital of 2.2 million pounds.36 This point can be pursued further by establishing a rough measure of the capitalisation of the markets for securities in both countries. Figure 5.5 presents series that include the total value of the government debt and the value of joint-stock companies. By dividing the amount of equity and bond instruments by GDP, a measure can be derived that gives an idea of the extent to which companies and governments financed their undertakings through the market. We have to be aware, however, that in the English case part of the debt was subscribed by foreign, mainly Dutch, investors when issued. With respect to the 1693 Tontine this concerned 3.4% of the issue and when Bank of England stock was subscribed a year later this was 2.1%. Foreign involvement in new issues may have increased as in 1786, when new East India Company stock was issued, foreigners subscribed for 26% of the value that was put on the market.37 During the period 1766-1800 a minimum of 40% of the Danish governmental debt was contracted abroad.38 Overall, foreign participation in subscriptions (England) and the placing of loans abroad (Denmark) would therefore probably have reduced the capitalisation figure for Denmark most.

35 Stancke, The Danish stock market, 110-111, only gives statistics for the largest companies for some benchmark years. Therefore the list of joint-stock companies presented on pages 117118 was used to construct a series for all companies. The data were collected from various sections of this study. The series only starts in 1730 since almost all joint-stock companies were established after that year. All banks, insurance companies and trading companies were included, but clear information regarding the date of establishment and stock size of some minor funds (sugar refineries and other companies) was lacking. These funds could therefore not be included, but this does not really change the total stock size since these companies were only small. It was found that Stancke’s summary data represent well over 90% of the total stock from 1755 onwards, but this only was about 40% in 1730. The series that has been constructed here thus gives more accurate figures for the earlier period. 36 Scott, Constitution and finance, I, 335-336. 37 Dickson, The financial revolution, 256, 306; Wright, ‘The contribution of overseas savings’, 669. 38 Riley, International government finance, 138.

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20% 0% 1694

1704

1714

1724

1734

1744

1754

1764

144  |  The economic consequences of the Dutch debt

1774

1784

equity

Figure 5.5

Securities 5.5

market capitalisation in England and Denmark, 1690-1800 (in percentages of GDP) 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1690

1700

1710

1720

1730

1740

England

1750

1760

1770

1780

1790

1800

Denmark-Norway

Source: Scott, Constitution and finance, I, 335-336, 371, 394; Mitchell and Deane, British historical statistics, 401-402; Stancke, The Danish stock market; Riley, International government finance, 138; Poulsen, ‘Kingdoms on the periphery’; Poulsen, ‘Danish state finance’; Harris, Industrializing 5.6 English law, 58, 170-172, 194-195; Maddison, A millennial perspective, 247, 261. Note: Estimates on the size of English joint-stock companies are available for 1695, 1703, 1717, 1740, 60%1760 and 1810. These figures were interpolated. The Copenhagen-London exchange rate – 50% collected from Friis and Glamann, Prices and wages, 66-68, 78-103 – was used to convert the Danish values to English pounds. January quotations were used instead of July quotations since 40% they were somewhat better distributed for the period prior to 1748. Missing values were inter30% Since the figures for the Danish government debt of Riley and Poulsen were used, the polated.

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series 20% for Denmark-Norway only starts in 1730. Maddison’s GDP figures were used to correct for the size of the economy. GDP is thus expressed in 1990 Geary-Khamis dollars. 10%

0% 1690

1700

1710

1720

1730

1740

1750

1760

1770

1780

1790

1800

Figure 5.5 shows that at the end of the seventeenth century the capitalisation England Denmark of the English securities market was already much larger than in Denmark. As the eighteenth century progressed, the gap between the two countries became much wider. This strongly suggests that it was uncommon or even difficult for kings and companies to attract capital through the capital market in Denmark. It is telling in this respect that the Danish government only raised its first domestic loan on bonds in 1785. It concerned the rather modest sum

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of 500,000 rigsdalers at 4% interest.39 The capitalisation of the securities market alone does not tell the whole story, however, because the average liquidity of the secondary market was also of great importance to those wanting to buy or sell securities. The number of transactions on the stock market will therefore be used to illustrate that in this respect the capital market in Denmark was also underdeveloped. The evidence for transactions on the Copenhagen stock market has also been reviewed by Stancke. He shows that price quotations only become available from around 1759 and concludes that only from the early 1780s onwards did the Stock Exchange take on any importance.40 His evidence for sales of shares in five benchmark years during the second half of the century supports this. On average 0.45% of the available number of shares was traded annually during these years.41 The London stock market was obviously much more developed. Price quotations were regularly published from the late seventeenth century onwards (e.g. John Castaing’s Course of the Exchange).42 Investors were also more active on the London market than they were in Copenhagen. Using the same benchmark years for the English funded debt and assuming that securities traded in blocks of £500, equalling the Danish 0.45% of securities traded would have required an average of 1,541 securities to be traded during the year. Clearly, the number of transactions on the English Stock Exchange was much larger than this. Evidence for the period 1694-1754 shows, for example, that such numbers were easily realised by Bank of England stock alone. And data for the period 1750-1754 demonstrate that 1,702 transactions were made per year in Bank of England stock and an average of 1,091 annual transactions was recorded for the East India Company. Many thousands of other transactions can be added for annuities

39 This interest rate only applied when one subscribed to bonds of 1,000 rigsdalers. When one subscribed to bonds of 150 rigsdalers, the interest rate only amounted to 2%. See Gejl, Fondsbørsvekselernes historie, 19. 40 Michie, ‘Transfer of shares’, shows the different ways in which owners and potential buyers of shares could be brought into contact with each other as well as how price information was diffused in the pre-share broker (1824) and pre-stock exchange (1844) periods for early modern Scotland. 41 Stancke, The Danish stock market, 11-13; 112-113. On page 11 it is mentioned that ‘only 26 shares were traded on the stock exchange’ whereas page 112 gives 40 sales of shares. Perhaps the former concerned the number of transactions whereas the latter referred to the number of shares actually sold. Gelderblom and Jonker, ‘Completing a financial revolution’, 656, show that during the period 1603-1612 a similar value was achieved in the trade of VOC shares in Amsterdam in a single month. 42 Neal, Rise of financial capitalism, 20-43.

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146  |  The economic consequences of the Dutch

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and consols.43 The secondary market was therefore also much larger and better developed in London than in Copenhagen.44 Entering the foreign capital market may also have been more risky in the case of Denmark. The empirical studies discussed above found that the predictability of exchange rates is an important variable for attracting portfolio investments. Since investments in London and Copenhagen had to be made in the respective local currencies, this variable may also have been of importance here. The research of Friis and Glamann has resulted in a collection of Copenhagen exchange rates on Amsterdam.45 They give the prices of fortnightly bills expressed in the percentage by which the Dutch currency (current) exceeded its par value. When one had to pay 105 Danish rigsdalers to purchase 100 Dutch rijksdaalders, the exchange rate takes the value of 5%.46 The Amsterdam-London series, which contains 90 observations, concerns sight prices (bank money) and is also given in percentages from par. A twomonth series with 86 observations was also included in the analysis in order to get a better comparison with the fortnightly Copenhagen exchange rates.47 As the guilder-pound exchange rates were given as the Amsterdam price on London, the Copenhagen series was transformed into the Amsterdam rate on Copenhagen to make both series comparable. It was assumed that capital markets were efficient, so that the exchange rate could be converted to the number of Dutch rijksdaalders needed to purchase 100 Danish rigsdalers (e.g. [100 ÷ 105] x 100 = 95.2). Where necessary Posthumus’ agio series of bank money were used to express exchange rates in bank money.48 The following results are based on those years for which entries are available for both London and Copenhagen.

43 Dickson, The financial revolution, 465, Appendix D; Mitchell and Deane, British historical statistics, 401-402. During the period 1704-1755 Bank of England and East India Company stock usually traded in larger blocks, whereas annuities and consols traded in smaller blocks. 44 See Svendsen and Hansen, Dansk pengehistorie, 13-83 (pages 20-22 on the secondary market in particular); Stancke, The Danish stock market; Mirowski, ‘English joint stock shares’; Gejl, Fondsbørsvekselernes historie, 15-23; and Michie, ‘Friend or foe?’, for additional information on the Danish and English securities markets. 45 Friis and Glamann, Prices and wages, 61-103. 46 Based on these data two series were constructed: one with the first available quote from January and one with the first available quote from July. The January series contains 73 observations whereas the July series has 82. As both series showed very similar movements, the July series was preferred since it contained more observations. 47 Schneider et al., Währungen, VI, 71-78. The 1800 observations, however, refer to current guilders. 48 Posthumus, Nederlandse prijsgeschiedenis, lix-lxiii, 651-656, gives monthly agios. Those for January and July have been collected. As the correlation between the two series was high and since the former consisted of fewer entries (74) than the latter (82), the July series was preferred. The additional advantage is that the Copenhagen exchange rates were also from July, so the conversion is as accurate as possible.

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During the period 1700-1800 the average value of the exchange rate for Amsterdam-Copenhagen was 80.5 rijksdaalders for 100 Danish rigsdalers. The coefficient of variation (standard deviation ÷ average) was 6.8%. The figures for Amsterdam-London (sight) were 106.4 guilders for £10 with a coefficient of variation of 4.0%. The values for the two-month series were 80.6 rijksdaalders and 5.6% (Denmark) and 104.9 guilders and 2.6% (England) respectively. The coefficient of variation of the exchange rate on Copenhagen was thus higher than on London. Strictly speaking, this means that it was less risky for investors to invest their money in London than in Copenhagen, but it is difficult to ascertain how much value should be ascribed to this (small?) difference in exchange rate volatility. One hint that Dutch investors were indeed occupied with this exchange rate may be provided by the fact that the loans that were provided to Denmark were expressed in rigsdalers and guilders. Since the par rate was used (1 rigsdaler = 2½ guilders), the Dutch creditors made the more volatile exchange rate the problem of the Danes. In this way the Dutch ensured themselves of a more certain return on their investment.49 The above discussion shows a number of things. Even though the Danish capital market may have been underdeveloped, from an organisational point of view the Danish king had no need to place loans abroad. Even in the heyday of foreign participation in the Danish debt between 40% and 60% of this debt was issued domestically.50 That the other loans were not issued domestically meant that the Danes were apparently unable or unwilling to fully furnish the required capital. This does not mean, however, that one had to issue the additional loans abroad. Just as in England, one could have relied upon foreigners subscribing in Copenhagen. That this was not done may have been caused by the fact that the Danish capital market was only small, that not many transactions were carried out there and that entering the market was problematic (i.e. because the exchange rate of the rigsdaler was slightly more volatile than the exchange rate of the pound). In addition, however, the credibility of the debtor may also have played a role. The issue of credibility also played a role in England. For a long time after the Glorious Revolution, the English monarchy found it difficult to dispose of short-term loans and increase the long-term funded debt, and interest rates remained high (e.g. above 6%) for quite some time. By using chartered companies this problem could be partially resolved. These companies provided loans to the government in return for trading or banking privileges. Later on they also swapped government debt for stock. Trading companies could also 49 Buist, At spes non fracta, 23; cf. Chapter 4. 50 Riley, International government finance, 138; see also Figure 5.6.

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148  |  The economic consequences of the Dutch

make commercial profits, which meant that investors were more certain that they would actually receive some form of financial compensation each year. For investors this also meant that they could more easily sell their securities if required.51 Only when the credibility of the funded debt was established did it become more common to acquire debt by issuing bonds. This process was also reflected in the preference of Dutch – and English – investors for the various English securities (see Figure 5.4).52 A parallel process can be observed with the Danish kings. It is likely that they enhanced their credibility with their potential creditors and the ease with which these creditors could invest in Danish government bonds by negotiating loans with Dutch banking houses in Amsterdam and The Hague. This practice removed some of the practical difficulties of foreign investment such as transferring interest payments and capital sums back to the Netherlands. Since Dutch investors were familiar with these banking houses and their entrepreneurs, this may also have substantially bolstered the willingness to invest in Danish bonds.53 We have to be aware, however, that such a construction did not necessarily mean that sums that were negotiated this way were also secure. Individual Dutch investors would have relied heavily on the information provided to them by the banking houses, but this information did not have to be accurate. Dutch historian Buist, who has extensively studied banking houses and the loans they negotiated, has his doubts. He suggests that the commission that the bankers received inclined them to push loans – even those that were not very sound – on the market.54 The information that the banking houses could dispose of was also not always perfect. The plantation loans may be used to illustrate this. Van de Voort provides a concise overview of the way in which plantation loans were introduced to the market in the Netherlands. In 1753 Amsterdam banker Willem Gideon Deutz set the standard with his contract for the first plantation loan. First of all he demanded a valuation of the plantation and prescribed that only 5/8 of this value could be borrowed. One also had to provide proof of ownership, maps, information about other credit relations and one had to promise that no new credit relations would be entered into without the prior consent of Deutz. Moreover, one had to promise that all produce would be shipped to Deutz in Amsterdam and that the proceeds would be used to pay interest and pay off the capital sum. That such precautions did not suffice is shown by the fact that loans were not always used for in-

51 See for example Carter, Getting, spending and investing, 11; Dickson, The financial revolution. 52 Sussman and Yafeh, ‘Institutional reforms’, 922-923. 53 In Chapter 4 it was furthermore shown that assigning future income from tolls also reduced the risk associated with government loans. 54 Buist, At spes non fracta, 23-32.

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Dutch foreign investment in a broader perspective  |  149

creasing production and that plantations were often valued too highly so that loans were provided that were out of proportion with respect to production.55 However, we have to realise that contemporaries were also (partially) aware that problems of this kind might exist. Chapter 4 has already argued that for such reasons, the interest rates charged on plantation loans carried a higher risk premium than loans to Danish semi-private companies and kings.56 To sum up, it appears that the eighteenth century, in particular, was a period during which Dutch capitalists were searching for foreign investment opportunities. At the same time, though, they were also trying to reduce the risks associated with such investments. Foreign debtors were aware of this. The English government initially responded by issuing loans through the chartered companies. Investment in Danish funds (government and companies) was stimulated through the fact that these loans were negotiated in Holland.

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5.5 Effects on receiving economies and international capital markets The location at which Dutch investors made their capital available to the surrounding North Sea economies had important implications for the development of domestic capital markets and the integration of international capital markets. The effects of location are clear. In England the size of the capital market was enlarged every time that the government and companies attracted new capital. As a result Dutch investors could relatively easily enter into the English primary and secondary markets in order to purchase securities. This was much more difficult with the market for the Danish state debt, since the Danish government attracted credit through loans that were issued in different markets (e.g. Amsterdam, Genoa, Hamburg, Frankfurt, Bern and Geneva).57 Consequently there was not a single market for Danish credit and one could thus say that there were in fact ‘multiple’ Danish national debts. Of course this enabled the Danish kings to tap into different capital markets, but at the same time it decreased the average secondary market size for Danish bonds. Moreover, it was dependent on the circumstances in the various foreign

55 Van de Voort, Westindische plantages, 91-93, 102-103, 153-196, 254-259. 56 In another respect, information could also turn out to be incorrect. Expectations about future prices of sugar and coffee, for example, proved inaccurate. Instead of moving further upward prices actually moved down. With their income declining the planters saw themselves forced to temporarily cancel or reduce payments on their loans. Investors themselves could thus also be responsible for incorrect information. 57 Lüthy, Banque protestante, II, 74-75; Johansen, Dansk økonomisk politik, 108, 296-297.

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150  |  The economic consequences of the Dutch

towns as to whether such a secondary market for the respective local Danish funds came into existence at all. There was definitely such a market for Danish bonds in Amsterdam, but it remains to be seen how well developed it was. Unfortunately, the price currents of the Amsterdam Exchange – published from 1613 onwards – did not contain stock or bond prices. Official quotations only become available from 1796 onwards with the publication of the Prijscourant der effecten. Weeveringh therefore claimed that we have to rely on other – private – sources for information. In his publication on bond prices on the Amsterdam Exchange, Van Dillen made use of the Amsterdamsche Courant. This newspaper published quotations from 1723 onwards, but only included those funds in which futures trading existed. As this was only the case for a number of Dutch and English funds, the market for Danish bonds was apparently much less important. Some prices from sales and auctions are available for 1768, 1790, 1792 and 1794. Price currents are available for 1778, 1779, 1780, 1783 and 1793. Unlike English securities, which also found a way abroad to Amsterdam, Weeveringh claims that the bulk of the Danish obligations that were issued in Amsterdam remained in Dutch hands.58 It is known that on at least one occasion the Danish authorities purchased bonds on the Amsterdam stock market in order to reduce the outstanding debt. In 1783 seven obligations were bought for the amount of 3,304 rigsdaler.59 There were also important effects on the integration of the international capital markets; or at least our perception of this integration. Since it was relatively easy for people in Holland to purchase English securities in Amsterdam or London – the latter often went through Dutch and English notaries – a lively market for these funds existed in both towns.60 As a consequence, the prices of various English funds have been well documented. The resultant large number of security price quotations has become an important data source for economic historians interested in the integration of capital markets.61 Their studies document in great detail that from as early as the first quarter of the eighteenth century onwards the Amsterdam and London capital markets were well integrated. The integration of these markets was made possible by the fact that identical securities were traded on both mar-

58 Weeveringh, Geschiedenis der staatsschulden, I, 47-49, 77, and II, 846; Van Dillen, ‘Effectenkoersen’, 1-2; Riley, Pieter Stadnitski, Appendix E; Riley, International government finance, 138 note 81. 59 Johansen, Dansk økonomisk politik, 108. 60 See Van Nierop, ‘Brieven’, and Wilson, Anglo-Dutch commerce and finance, Appendices B-D, for the correspondence between an investor and his broker and the procurations of Amsterdam notaries. 61 Neal, ‘Integration and efficiency’; Schubert, ‘Innovations, debts, and bubbles’; Neal, Rise of financial capitalism; Oppers, ‘Interest rate effect’; Dempster, Wells and Wills, ‘A common features analysis’; Eagly and Smith, ‘Domestic and international integration’.

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60% 40%

Dutch foreign investment in a broader perspective  |  151

20% 0% 1694

1704

1714

1724

1734

1744

1754

1764

1774

1784

kets. Since the Danish kings acquired capital by negotiating loans in differdebt could equity ent foreign towns, similar securities not be traded on the stock markets of Copenhagen and Amsterdam. Prices for identical securities in both towns are therefore not available so economic historians cannot perform the statistical tests that could be performed when using English data. Had all Danish 5.5 securities been issued in Copenhagen, this might have been completely different. 3.0% This does not mean, however, that Dutch capital did not play an important 2.5% role in Denmark. When Dutch investments are expressed as their percentage share in the government debt, the Dutch share was much larger in Denmark 2.0% than in England. Figure 5.6 summarizes the data. The importance of Dutch capital in the English funded debt increased from the late seventeenth cen1.5% tury onwards to reach a peak of 15.9% in 1757. From that point onwards the Dutch 1.0% share decreased. With respect to Denmark, data on government debt as given by Riley and Poulsen were used, so the comparison with England 0.5% can only really be made from 1730 onwards. It is clear that during the period 1730-1763 at least, Dutch capital was not influential in Denmark-Norway. 0.0% This1690 changed 1700 during 1710 the 1720 1760s 1730 and 1740until 17501800 1760Dutch 1770 capital 1780 amounted 1790 1800 to between 22% and 55% of the total Danish government debt. Thus, at times England Denmark-Norway Dutch capital was very important for Denmark indeed.

Figure 5.6 5.6 Dutch share

in English and Danish government debts, 1690-1800

60% 50% 40%

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30% 20% 10% 0% 1690

1700

1710

1720

1730

1740

England

1750

1760

1770

1780

1790

1800

Denmark

Source: Chapter 4; Appendix VII; Mitchell and Deane, British historical statistics, 401-402; Riley, International government finance, 138; Poulsen, ‘Kingdoms on the periphery’; Poulsen, ‘Danish state finance’. Note: Nominal holdings of English government debt instruments were used because the funded debt was expressed in nominal values.

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80% 60%

152  |  40% The economic consequences of the Dutch 20% 0% 5.6 Conclusion

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1694

1704

1714

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1784

This chapter reconstructed Dutchdebt investment equity in England in order to be able to put the estimates of Dutch investment in Denmark-Norway, which were included in Chapter 4, into a wider context. The information collected in Figure 5.2 showed that in absolute terms much more was invested in English 5.5 than in Danish funds. It was argued, however, that the size of the investments could not be studied without taking the size of the receiving econo3.0% mies into account. This way, the large absolute difference between Dutch investments in England and Denmark melted away rapidly and relative to the 2.5% GDP Dutch holdings of Danish funds were actually larger during the 1770s and2.0% 1780s. Therefore, the growth of the English market did not crowd out Dutch investments in other parts of the North Sea region. 1.5% Afterwards, Dutch investments were split according to criteria associated with management control. Table 5.3 thus differentiated between loans and 1.0% debt and equity instruments. An important difference between DenmarkNorway 0.5% and England was that during the eighteenth century the former almost completely financed its capital demand through debt instruments 0.0% the latter also used equity instruments. The absence of loans and whereas 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800 foreign1690 direct investment during the eighteenth century meant that the exEngland geographical Denmark-Norway planatory elements of the financial studies could not be used. These aggregate on the level of portfolio investments and do not differentiate between equity and debt instruments. It was argued, though, that this distinction was artificial anyway since England offered trading and banking privileges to certain joint-stock companies in return for loans. The compa5.6 nies subsequently financed these loans by selling equity to investors. The advantage of this procedure for the government was that investors put more 60% trust in the joint-stock companies than in government bonds. Negotiating 50% through equity thus offered a means for the government to raise large credit 40%of money against more modest rates of interest than would have been sums possible 30% if the public had been approached directly. There was nevertheless one important difference between the ways in 20% which England and Denmark-Norway attracted capital. The former placed 10%on its domestic market, whereas the latter raised a significant share of loans its credits on various foreign capital markets. In section 5.4 it was shown that 0% 1710 1720 1730because 1740 1750 1760 1770 were 1780 unable 1790 1800 credit1690 had to1700 be attracted abroad Danish creditors to finance the required sums. That England foreign capital markets were approached and Denmark that loans were not issued in Copenhagen itself and subsequently subscribed by the Dutch – as was done in England – can be explained by the fact that the Danish capital market was underdeveloped. The number and size of jointstock companies quoted on the Exchange was small and transactions were infrequent. In addition, investors may have perceived the exchange rate to

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Dutch foreign investment in a broader perspective  |  153

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have been too volatile. The solution to these problems was to negotiate loans with Dutch banking houses. For Dutch investors, this removed the difficulties of international transactions in the underdeveloped Copenhagen capital market. They were also familiar with the local banking houses, which may have made them more inclined to invest in Danish funds. Section 5.5 then studied the effects that these large flows of Dutch capital had on host countries as well as the international capital markets. Access to Dutch capital was the major key to satisfying the Danish government’s lending requirements. It was also shown that the way in which governments and companies attracted capital was a very important variable in determining to what extent international capital market integration was possible. Since it was relatively easy to enter the English market and because the Dutch frequently purchased securities there, arbitrage between English funds traded in Amsterdam and England could occur. International price movements became synchronised as a result. Because of the richness of the available sources and the fact that international markets were already well integrated early on, this process has attracted much attention from economic historians. Because the international market for Danish bonds was both small in absolute terms and well dispersed, this type of capital market integration could not take place between Copenhagen and Amsterdam. Aside from the modest size of absolute investment in Denmark-Norway, this has led economic historians to conclude that during the early modern period Dutch capital only made an impact on England. This chapter has shown, however, that Dutch capital clearly played an important role in financing governments and commerce not just in England but also elsewhere in the North Sea region. The Danish kings knew perfectly well from as early as the late seventeenth century onwards how to access the Dutch capital market. The fact that this did not result in the synchronised movement of security prices had to do with the fact that these credits were negotiated in Amsterdam. But when it was necessary, Danish kings and Dutch creditors were easily brought together.

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6   | Relative prices, markets and consumers

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6.1 Introduction So far the markets for goods, labour and capital have been studied separately. Chapters 6 and 7 will therefore turn to the coherence that existed between them. The aim of this is to find out whether these three different types of markets in the various North Sea regions were closely connected to each other and whether the interplay between them was efficient. In order to analyse this, two case-studies will be made of an important part of the economies of northern Europe: the timber processing industry. The central question to be answered is which technology was used in each region and why. Chapter 7 will pay particular attention to the producers of timber in Scandinavia and the Baltic, but Chapter 6 will first take a look at the major consumers of timber, the Northern Netherlands and England. During the seventeenth and eighteenth centuries the economies of Holland and (south-east) England were the most modern in Europe. The share of agricultural workers in the total labour force was the smallest and urbanisation levels were highest in these two regions. Whereas in other countries labour lost its purchasing power over goods, labour in Holland and England was able to maintain it. In addition it has been estimated that the gross domestic product (GDP) per capita was much higher than elsewhere. It was even possible to structurally increase it during the early modern period; something that was virtually impossible anywhere else. A substantial part of the wealth of both countries was based on their manufacturing industries

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Relative prices, markets and consumers  |  155

and (international) commerce. On a general level, Holland and England were thus much alike. Timber played an important part in facilitating the vigorous economic expansion of both countries. It was essential for shipbuilding, the construction industry and as fuel. Although other sectors also required significant supplies of timber, the first two probably consumed the bulk. Local forests did exist – somewhat more so in England than in the Republic – but these were largely unable to meet demand. This made large-scale imports of timber a necessity. England and Holland shared these circumstances and subsequently became the most important customers on the international timber markets. Obviously logs that had just been taken out of the forest required some form of processing before they could be used. In order to be able to differentiate between the various stages of processing, Chapters 6 and 7 will distinguish between (largely) unprocessed timber (logs and squared logs or balks), semi-processed timber (e.g. deals) and processed timber (of various sorts, but only after final processing at the location of use). This categorization is not comprehensive since in some cases balks and deals were used without further processing, but this will not alter the main research conclusions. Because of a lack of standardisation in the dimensions used in construction and shipbuilding, final processing necessarily had to take place at the location of use. This meant that there was effectively an insurmountable tariff wall that protected final processing from outward competition. As timber was originally sawn by hand, this processing required an enormous amount of labour. This should not have been a problem per se, but as Holland and England were high-wage economies this resulted in enormous labour costs. Both countries thus had an incentive to economise on labour input. Surprisingly, both regions reacted in quite different ways. During the late sixteenth century the sawmill was introduced in the Netherlands and, given the absence of sufficient fast-flowing water, these mills were powered by wind. The application of this wind-powered sawmill witnessed a spectacular rise in numbers and locations. The existing litera-



De Vries and Van der Woude, The first modern economy; Van Zanden, ‘Wages and the standard of living’; Allen, ‘Economic structure’, Table 2; Allen, ‘The great divergence’; Allen, ‘Progress and poverty’; Ormrod, Rise of commercial empires; Van Zanden, ‘Estimating’.  Buis, Historia forestis, II, 487-493. Warde, ‘Fear of wood shortage’, 34, estimates that 6-7% of England and 4% of the Netherlands consisted of wooded area at the end of the sixteenth century.  Note, though, that on the supply side some level of standardisation was attained as dimensions of balks and deals increasingly were fixed.  Coppens et al., Vierhonderd jaar houtzagen; Dobber and Paul, Cornelis Corneliszoon. Traditionally the invention has been attributed to Cornelis Cornelisz. van Uitgeest, but recently Denewet, ‘Cornelis Cornelisz.’, contested that the invention was of Dutch origin at all.

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ture holds the sharp increase in wage levels from the mid-sixteenth century onwards responsible for its introduction and places it in a broader process in which manual labour was substituted by machinery. Given the fact that close ties existed between the Dutch and English economies and that the price of labour had also increased considerably in England, it is striking that sawmills did not become a structural feature of the English economy. The earliest sawmills were built during the first decade of the seventeenth century, but they do not seem to have been very successful. Sources often document the hostility of hand-sawyers towards the sawing machines. When a Dutchman erected a sawmill near London in 1663, the millwrights were scared away by angry mobs of hand-sawyers armed with axes. During the late 1750s and 1760s the Society for the Encouragement of Arts, Manufactures, and Commerce promoted the use of the sawmill in England. On their initiative a mill was built in London in 1767, but on 10 May 1768 a mob of 500 sawyers and rioters attacked and demolished it. Given these exceptions England largely sawed its timber by hand until the more widespread introduction of sawmills around 1800. This brief comparison leads us to the question of why and how the English could ignore this important labour-saving technique that seemed profitable to its neighbours across the North Sea. Answering this question can help us better understand the differences in market structures and the processes of early modern economic development and interaction. Moreover, as Lucas’ recent article shows, the diffusion pattern of industrial mills over Europe is also an issue in the history of technology. This chapter – and also Chapter 7 – will therefore add to this discussion. In section 6.2 this chapter will present an overview of the arguments that have been put forward to explain the absence of sawmills in England. It will be shown that these arguments do not provide sufficient explanation. Section 6.3 will subsequently propose an alternative explanation: the relative prices of labour and capital and the cost of the capital goods (i.e. the sawmills). It will 

Honig, De molens van Amsterdam; Polderdijk, ‘Houtzaagmolens bij Nieuwland’; Rotteveel, ‘Rotterdamse windmolens’; Perks, Molens in Utrecht; Van den Hoek Ostende, ‘Houtzaagmolens’; Bunskoeke, ‘Friese zaagmolens’; Trooster, ‘Houtzaagmolens te Zwolle’; Paping, ‘Industriële windmolens’; Van Prooije, ‘Verspreiding van houtzaagmolens’; Van Leeuwen, Houtzaagmolen De Ster. See De Vries and Van der Woude, The first modern economy, 270-349 (346-347, on the number of industrial mills in Holland), 633-634.  Cooney, ‘Britain’s missing sawmills’, 41-42; Hills, Power from wind, 170-171; Appleby, ‘Public spirit at a premium’, 54-55; Appleby, ‘Limehouse sawmill’, 181-182; Cooney, ‘A return visit’, 83; ‘Premiums by the Society’; ‘Premiums offered by the Society’. Water-powered sawmills were used in Scotland on the River Spey from at least the 1720s onwards. Chapter 7 will pay more attention to this phenomenon. See Shaw, Water power; Cooney, ‘Britain’s missing sawmills’, 39-40; Cummings, ‘Industry and investment’, 26-28; Cooney, ‘A return visit’, 86.  Lucas, ‘Industrial milling’.

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Relative prices, markets and consumers  |  157

be argued that these do not only explain the observed differences between Holland and England, but also the diffusion pattern within the Netherlands and the variations in the introduction of steam-powered sawmills. The following two sections will document how England coped without a domestic sawmilling industry. Evidence will be provided from the two main timberconsuming sectors, the construction and shipbuilding industries. This requires the compilation of figures on the types and amounts of timber that were traded. Section 6.6 will then try to explain how resistance to sawmills should be interpreted. The chapter will end with a summary of the main research results and conclusions.

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6.2 The absence of a sawmilling industry: the arguments The arguments that have been proposed to explain England’s absent sawmills are of a technological, geographical, economic and social nature. This section will briefly discuss them. To start with the first, it is unlikely that a lack of technological knowledge or abilities was responsible for the late introduction. The English already had a long experience with mills during the Middle Ages and Dutch technology and skills could easily be obtained in the form of mills, blueprints, manuals and skilled labourers. The technical descriptions by the Swede Pieter Linpergh (Architectura Mechanica of Moole boek, 1686) and the German Leonhardt Christoph Sturm (Vollständige Mühlen Baukunst, 1718) made information concerning Dutch mills available in printed form. Although the authors based their descriptions on observations made during their visits to the Republic, their books did contain some flaws. These were removed in 1734 when the Dutch millwrights themselves put their knowledge on paper (Johannis van Zyl, Theatrum machinarum universale, of groot algemeen moolen-boek; Leendert van Natrus and Jacob Polly, Groot volkomen moolenboek). These descriptions, containing both images and explanations, made knowledge about Dutch mills available to anyone who purchased the books. As it is known that people outside the Republic owned these books, foreigners thus clearly profited from this opportunity.

 Holt, Mills of medieval England; Cooney, ‘Britain’s missing sawmills’, 31; Langdon, Mills in the medieval economy.  This paragraph and the following ones on the transmission of skills and technology are based on Åström, ‘Technology and timber exports’, 2, 5, 12-14; Robertson, Sawpower, 11; Åström, From tar to timber, 33; Davids, ‘Transfer of windmill technology’; Davids, ‘Successful and failed transitions’, 229-230; Layton, ‘Changing origins’, 71-73; Boomgaard, ‘Windmills of the mind’; Couwenhoven, ‘Uitvoerverbod’; and Bonke, ‘Van Amsterdam tot Japara’, 162-175.

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It could, of course, be argued that these books – especially the more complete Dutch ones – were only published relatively late. This, however, did not make foreigners refrain from introducing Dutch mills. The Dutch government did not impose restrictions on the dissemination of knowledge or technology until the mid-eighteenth century (1751-1752).10 From their introduction in the late sixteenth century until the mid-eighteenth century, industrial windmill knowledge, skills and technology could thus be sold and bought freely. In addition to mills, saw blades and other saw machinery were also regularly exported. Dutch historian Davids divides the export of Dutch windmill technology into three periods: sixteenth century-1680, 1680-1760 and 1760-nineteenth century. He sees the first period as ‘the hesitant beginnings of the triumphal march of the holländare or Holländermühle in North-Eastern Europe’. Some examples may illustrate this ‘triumphal march’. During this period a Rotterdam carpenter was hired to construct a sawmill – to be operated by a sawmiller from Zaandam – in Brittany (1621) and Dutch expertise was also brought in to operate a wind-driven sawmill in Gothenburg (1635). Wind powered sawmills could also be found in the New World. From 1623 onwards the Dutch had built windmills in their Manhattan colony, one of the first being a sawmill with 20 blades. Sawmills – powered by wind as well as water – were even erected by the Dutch in Asia from the mid-seventeenth century onwards. These mills were mainly located close to Batavia, but they could also be found in Cochin and Mauritius. From 1680 onwards sawmills and / or sawmill technology were increasingly being exported. It seems that this export was primarily focused on Riga and some ports around the Gulf of Finland. From the 1660s the new Dutch technique of multiple fine-bladed saws in a single frame was applied there. In 1681, for example, Dutch mill constructors were hired to build a sawmill in Narva. The mill was to be prefabricated in Zaandam. Although the Dutch applied the technology to wind-driven sawmills, around the Gulf of Finland it was also often applied to sawmills that were powered by a water-wheel. Although the Dutch sawmill was thus introduced relatively early around the Gulf of Finland, it took some time before it was used in Sweden proper. This was mainly due to the fact that the Swedish government did not allow the large-scale use of sawmills for the export of timber. Only with the issue of a Royal Letter in 1739 did it become possible for individuals to establish a fine-bladed sawmill. Åström provides a satisfactory explanation for the Swedish policy by pointing to the importance of the iron industry for

10 Gevaert, ‘Het zaagmolenpark’, 148, gives an example from Ostend that shows that these rules could be evaded by offering Dutch mill builders lifelong contracts so that they could settle in the town and not be prosecuted by the Dutch authorities.

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Relative prices, markets and consumers  |  159

the Swedish economy. As this industry required large amounts of firewood, the Swedish government tried to restrain the construction of sawmills and the export of timber. Around the Gulf of Finland, there were large timber resources and no iron industry, so the government could follow a different policy there. Due to increasing western demand, timber exports became important from the 1680s and 1690s onwards. During the last period Dutch mill types continued to be established abroad, but without direct assistance from the Dutch. The geographical argument includes the location of the mill and the domestic supplies of timber. The location of the mill was important for making deliveries of the heavy timber supplies possible, for arranging sufficient supplies of energy (wind or water) to power the mill and for securing sales in the centres of consumption. Good locations thus had to have access to a mix of these three elements and in the literature it has been argued that its flat lands (wind power) and waterways (transportation) gave Holland an advantageous position for establishing a sawmill industry. The Zaan region in particular, where a large number of the Dutch sawmills were concentrated, has been credited with having these advantages. It must be stressed, however, that this was far from being the only place where sawmills were established in the Netherlands. They were also found in many other locations where natural advantages were less obvious. Perhaps England’s domestic waterways were not as well developed as in the Republic, but most of the larger towns – the centres of production and consumption – were located at the mouths of rivers. The sawmilling industry that was established in England during the nineteenth century used steam as a means of propulsion. This meant that more locations were suitable for establishing the industry as wind and water power were no longer a restriction, but clearly there were also good waterways that could be used to transport the timber to the mills.11 Energy supplies do not seem to have been a major obstacle either. Modern research has shown that around the North Sea, there was ‘a large area with a more or less similar profile of wind speed and wind power’. The mean energy in the wind in northern Europe did fluctuate but remained more or less constant over time (between 1873 and 1982). There is no reason to assume that this was different during the seventeenth and eighteenth centuries. The distribution of wind and watermills during the early fourteenth century suggests that eastern England had a clear comparative advantage for the establishment of windmills over watermills. The fall of those rivers that drained into the North Sea was not high enough to power sawmills. It will therefore be assumed that during our period, differences in wind patterns between

11 Cooney, ‘Britain’s missing sawmills’, 31, 39-40; Cooney, ‘A return visit’, 84-85.

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160  |  The economic consequences of the Dutch

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Holland and eastern England were small. The implication of not having a water supply that could power sawmills was that, just like Holland, eastern England could only choose between manual processing and wind-powered sawmills. This in turn meant that both regions were faced with the same considerations when choosing between manual processing and wind-powered sawmills.12 Some authors have also questioned the suitability of English hardwoods for sawmilling. It has been claimed that ‘English oak is difficult to work because of its hardness and twisted grain… All imported oak is more straightforward than English oak, and therefore easier to work.’ However, oak was increasingly substituted by fir and both the English and the Dutch imported this kind of timber from Norway and the Baltic. The fact that this type of timber could be sawn at Dutch mills shows that the domestic timber supply of England should not have been a constraint when introducing sawmills. The fact that the Dutch also had access to their German hinterland does not seem to have given them a decisive edge over the English either. Some figures may illustrate this point.13 Auction statistics are available from the Zaan for the period 1655-1811. Schillemans, who has extracted the data from the Zaan archival sources, has shown that during the period 1655-1714 about 75% of the total value of this timber originated from the German Rhine region. He distinguished between six types of auction: four where only one type of timber was sold and two where a certain combination of these four types was auctioned. In number and value, balk auctions formed an important share of the timber that was auctioned. Again, about 75% of the balks came from the German hinterland. The number of balk auctions in the Zaan is available per ten-year period and since the average auction contained 600 balks, the maximum balk import from the Rhine hinterland could be estimated (see Figure 6.1).14 As German timber was auctioned in Dordrecht too, figures for the period 1723-1797 for this town in the southern part of Holland have also been included.15 Baltic

12 Troen and Lundtang Petersen, European wind atlas, 25, 37-39, 42, 386-387, 526-531; Davids, ‘Successful and failed transitions’, 234; Langdon, Mills in the medieval economy, 10. 13 Cooney, ‘Britain’s missing sawmills’, 31; Cooney, ‘A return visit’, 84; Couwenhoven, ‘De verdwijning’, 54. 14 Since balks were also part of the two combined auctions, it was assumed that these auctions consisted of balks only. In this way the maximum number of auctioned balks was established. 15 Schillemans, ‘De houtveilingen’, 193, 203-204, 241-242, 260, 262-263, 269-270, 272; Hart, ‘De Zaanstreek’, 26; Ebeling, Der Holländerholzhandel, 205-226; Van Prooije, ‘De houtvlotterij’; Van Prooije, ‘De verwerking’; Van Prooije, ‘Dordrecht’; Van Prooije, ‘Verspreiding van houtzaagmolens’. Auction statistics are also available for Amsterdam, but these do not contain German timber. See 250 jaar N.V. Houthandel; Middelhoven, ‘Amsterdamse veilingen’.

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Relative prices, markets and consumers  |  161

imports were based on the Sound toll registers, which registered which shipments of balks were destined for Holland. Evidently, some of this timber was also auctioned in the Zaan. Auctioning timber from Norway and the Baltic was less common, since this only arrived one shipload at a time. Given the fact that the German timber arrived in the form of large wooden rafts which were imported by a small number of specialized companies, buyers still had to be found in the Netherlands. Auctioning was a good instrument for distributing the timber between these buyers.16

6.1

Figure 6.1

The number of balks auctioned in Dordrecht and the Zaan and balk imports from the Baltic, 1650-1800 250,000 200,000 150,000 100,000 50,000 0 1650

1675

1700

1725

Baltic

1750

1775

1800

Rhine

Source: Bang and Korst, Tabeller; Schillemans, ‘De houtveilingen’, 193, 203-204, 241-242, 260, 262-263, 269-270, 272; Johansen, Shipping and trade; Ebeling, Der Holländerholzhandel, 205-226.

6.31734-1743 were linearly interpolated. The sharp decrease in balk imports from the Baltic during the year 1795 was probably caused by the French invasion of the Republic. average production costs

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Note: Data for Dordrecht were available for the period 1723-1797; missing values for the period

P

The combined data clearly show that Dutch imports of balks from the Baltic were much larger than from Germany. Imports from Germany had reached their peak during the Great Nordic War and decreased when imports from the Baltic were resumed. Not having access to the Rhine hinterland could have been problematic for the English, but as the Baltic was a much more

16 Bang and Korst, Tabeller; Johansen, Shipping and trade.

QH = Q4

Q3

hand mechanized 2 mechanized 4

QM

production size

mechanized 1 mechanized 3 mechanized 5

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162  |  The economic consequences of the Dutch

important supplier of unprocessed timber, gaining access to that market was more important. In principle, of course, the Baltic was also open to English merchants. As we will see, however, they only took their share as the eighteenth century progressed. Taken together, the evidence implies that geographical constraints might not have been such a problem after all.

Figure 6.2

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The Zaan region

The economic arguments mainly refer to foreign (i.e. Dutch) competition. It is thought that the Dutch were able to run their mills more cheaply than the English could and additionally that Dutch timber supplies might have been cheaper due to more efficient trading and transportation. As confidence in the profitability in sawmills was thus lacking, entrepreneurs hesitated to make large fixed capital investments. Moreover, Cooney believes that it was mainly the large Dutch shipbuilding industry which the sawmills produced for that made the difference. The Dutch economy of scale must have had some positive effects on prices, to the extent that even England imported ships from the Netherlands. I do not find these arguments convincing. If the Dutch indeed had an advantage in trading and transporting timber, the English could have profited from that. Instead, the Navigation Acts were

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Relative prices, markets and consumers  |  163

introduced, which reduced Dutch competition in trade, as it became more difficult for them to serve the English market. Shutting this important competitor out increased the chances of establishing a domestic sawmilling industry. During the last decades of the seventeenth century, the English also mastered the trick of competitively building ‘Dutch’ ships and as a result the need to import ships from the Netherlands disappeared. Moreover, foreignbuilt ships had never been able to gain a majority share in English tonnage, so a significant demand for English-built ships still existed.17 Last but not least, there is the social argument. This mainly relates to the point that the moral economy could have played a role. The popular feeling of the hand-sawyers – they were afraid that mills would leave them out of work – was perhaps of importance, but they were never backed by official policy. Although some sources claim otherwise, there was never a deliberate public policy to prevent the use of sawmills. Of course the hostility of the hand-sawyers could have deterred investors.18 As yet, little is known about the formal and informal power of the hand-sawyers. Their role will therefore be discussed in more detail later on. This review of arguments shows that the proposed explanations for England’s missing sawmills are not convincing or perhaps need further elaboration. The following sections will be occupied with doing exactly this.

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6.3 Relative prices as alternative explanation The variables that have been reviewed so far do not offer good vantage points to explain the differences between Holland and England, so a more fundamental economic explanation is required. Paul David’s seminal study ‘The mechanization of reaping in the ante-bellum Midwest’ presents the classic solution to the kind of problem we are confronted with here; that is a society that has to choose between using one of two techniques.19 David wondered why Midwestern farmers suddenly mechanised reaping around the mid1850s when the necessary technology had already been available for about 20 years. He developed a framework in which the average production costs of each technology are explained by relative factor prices (money wages and interest rates), the price of the capital goods and total production size. Figure 6.3 represents this framework. Since each technology involves a certain number of fixed costs, average

17 Davis, English shipping industry, 53-57, 60-66; Cooney, ‘Britain’s missing sawmills’, 36, 39; Cooney, ‘A return visit’, 83-86. 18 Cooney, ‘Britain’s missing sawmills’, 31-35; Cooney, ‘A return visit’, 84. 19 David, ‘The mechanization of reaping’.

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164  |  The economic consequences of the Dutch

production costs will be higher when the production size is small. However, the costs are higher for mechanised processing since a high initial investment is required to purchase the necessary machinery. Manual labour is relatively cheap because only a few simple tools are used. Increasing production will therefore lower average production costs, but this process will eventually be reversed by the limitation on the total supervisory capacity of the entrepreneur. The average production costs of manual processing are lowest with a total production of Qh. Access to machinery allows workers to produce more in the same amount of time, but this also implies that the lowest average production costs are only realised with a higher production (Qm). Average production costs thus continue to decrease for some time when using machinery whereas they are already increasing for manual processing. An entrepreneur will shift to mechanised processing only when Pmanual – Pmechanised > 0.20 The different cost curves for mechanised processing in Figure 6.3 illustrate how David’s model works. In Situation 1, average production costs are lowest at a production size of Qm, but since these are higher than p it is more advantageous to use manual processing and limit production to Qh. Similar curves are used for Situations 2, 3, 4 and 5 but each time the relative price of capital has been decreased – or the relative price of labour increased – or the capital goods have been made cheaper in order to make the curves shift downwards. In Situation 2 average production costs are equal when using machinery, but only when production is increased from Qh to Qm. When the relative price of capital is further reduced or when the capital goods have become cheaper, this threshold point is reached at ever decreasing sizes of production (e.g. Q£). Eventually mechanised processing could even become cheaper than the lowest average production costs of manual labour. Figure 6.3 thus illustrates that mechanisation can be made feasible by increasing production, by a reduction in the relative price of capital / an increase in the relative price of labour and by the capital goods becoming cheaper. The difference between David’s model and the historical situation concerning the timber-processing industry is, of course, that prior to the invention of the sawmill, Dutch entrepreneurs could not actually choose between the two technologies. What this section will therefore attempt is to show that – within David’s model of average production costs – during the late sixteenth century a situation arose in which it became tempting for some clever entrepreneurs to try to design a machine that could reduce the costs of sawing by hand. These entrepreneurs were driven by a sharp increase in hand sawyers’ wages in the western Netherlands during the sixteenth century. The process of changing factor prices determining the type of technology that is used is called in-

20 David, ‘The mechanization of reaping’, 18-20.

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200,000 150,000

Relative prices, markets and consumers  |  165

100,000

duced technical change.21 In the following part of this section, it will be argued 50,000 that the observed difference in the use of timber-processing technologies in 0 the Netherlands and England can be explained very well by this framework. 1675 be directed 1700 towards 1725the price 1750 1775 1800the Attention1650 will initially of labour and capital, price of the capital goods and the savings in labour costs in the Netherlands beBaltic Rhine tween 1550 and 1650. Subsequently, a comparison will be made with England during the seventeenth and eighteenth centuries.

Figure 6.3 6.3

average production costs

Cost curves for two technologies

P

QH = Q4

Q3

hand mechanized 2 mechanized 4

QM

production size

mechanized 1 mechanized 3 mechanized 5

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Source: Based on David, ‘The mechanization of reaping’, 20.

When looking at wages, it is important to remember – as was also stressed in Chapter 3 – that no such thing existed as ‘the’ English or ‘the’ Dutch wage level.2.40 Wages in the western Netherlands, for example, were higher than those in the eastern part of the country. And also within one region wages for particular 2.20 occupations could be significantly out of line with the average wage level. As 2.00shown in Chapter 3, the wages of building labourers are usually seen as was representative of the average wage level. In Holland, however, the demand for 1.80 processed timber increased so markedly during the sixteenth century that saw1.60 yers’ wages increased far more than the average wage level. As Figure 6.4 il-

6.4

1.40 1.20 21 1.00 Ruttan, Technology, growth, and development. 1500 1520 1540 1560 1580 1600

Holland

1620

1640

1660

1680

1700

England

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16

average production

166  |  The economic consequences of the Dutch

P

lustrates, their wage was around 65% higher than that of an unskilled labourer around 1500, but this had risen to 130% by 1590. This spectacular increase in the wages of sawyers drove the cost curve for manual processing upwards and to some entrepreneurs this must have made mechanised processing a production strategy worthwhile investigating. It is therefore unsurprising that it was during the last decade of the sixteenth century that the first designs of sawmills production size = Qfirst mills erected Q Q time were patented andQthe in Holland. At this other labourhand mechanized 1 intensive processing industries (e.g. those processing oil-containing seeds, mechanized 2 mechanized 3 mechanized 4 mechanized 5 dyewood, paper and hemp) also witnessed a period of widespread mechanisation.22 H

4

3

M

Figure 6.4

Wage 6.4

ratios of sawyers to building labourers in the western Netherlands and southern England, 1500-1700 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00 1500

1520

1540

1560

1580

1600

Holland

1620

1640

1660

1680

1700

England

Source: Rogers, A history, IV, 514-523, and V, 629, 664-670; De Vries and Van der Woude, The first Copyright © 2008. Amsterdam University Press. All rights reserved.

modern economy, 610-611; Allen, ‘The great divergence’; Allen, European wages and prices. Note: The English wages refer to a pair of sawyers. I have divided their combined wage by two to 6.5 determine the wage of a single sawyer. Rogers’ average for England has been based primarily on Oxford, Cambridge and Eton. 16

14 12 10 De Vries and Van der Woude, The first modern economy, 270-349, 610-611, 633-634; Dobber 22 8 and Paul, Cornelis Corneliszoon. In Mokyr’s terms the prescriptive knowledge (λ) of how to use the wind for labour-saving purposes had already been present for a long time in the 6 Netherlands (e.g. for grinding corn and draining polders). It only took some modifications 4 – which he labels microinventions – to make the existing techniques suitable for other (industrial) uses. Various ‘engineers’ tried to patent their findings, but eventually two types 2 – each useful for specific tasks – were adopted. Obviously it took some time to perfect these 0 technologies and one mastered the trick of sawing fir timber somewhat earlier than oak. 1500 1600of Athena. 1650 1700 See Mokyr, The lever 1550 of riches; Mokyr, The gifts western Netherlands

eastern Netherlands

England

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Relative prices, markets and consumers  |  167

Using David’s framework of average production costs, can it actually be documented that this was indeed the point at which mechanisation was a good solution? Following David, the average production costs of manual and mechanised processing must be compared, and attention should not just be paid to wage levels, but also to interest rates and the cost of the capital goods. Since David’s mathematical formulation was based on the amount of labour that was saved through the introduction of the reaper, he implicitly assumed that both types of work paid the same. However, it remains to be seen whether this was the case for the sawmilling industry in the Netherlands. Whereas during most of the sixteenth century sawing and shipbuilding were predominantly urban industries, from the late sixteenth century onwards these types of work increasingly became concentrated in the countryside (e.g. in the Zaan region).23 Thus, it was completely different people who were performing the work. Moreover, working in a sawmill probably only required the sawmiller to be highly skilled in order to properly supervise the work of the more ordinary workers. The scanty evidence on wage costs associated with the running of a sawmill (see below) suggests that the wages paid were not the wages of hand sawyers, but rather the much lower wages of building labourers. Taking the above into account, the present analysis will differentiate between the wages paid to hand sawyers and the wages paid to workers in sawmills. It should also be noted that David’s analysis was based on a comparison of actual farm sizes and the size of the production threshold at which mechanisation became profitable. Making an identical calculation for the Netherlands is problematic for two reasons. Firstly, it is difficult to collect sufficient data on the size of the companies involved in hand sawing. As a result, it cannot be determined statistically whether a company could benefit from the shift to mechanised processing. Secondly, the entrepreneurs that were involved in designing the new machine were not necessarily approaching the problem from the perspective of a company’s production size. They may very well have been new players in the market and as such they would only have been interested in the average production costs that resulted from the fulltime use of the sawmill.24 Many sawmillers in the Zaan region were new to the industry and therefore may have been driven by such considerations. For these reasons, calculating the threshold size and comparing it with the size of the hand sawyers’ companies is not possible and does not make much sense either. What can be calculated is the interest rate or rather the rate of return at which mechanisation became profitable. In this way we can use the maximum productivity of a sawmill and calculate the point at which the ma-

23 De Vries and Van der Woude, The first modern economy, 296-300. 24 With changing relative prices it is not unlikely that this threshold was first reached with a sawmill operating at its maximum production capacity.

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168  |  The economic consequences of the Dutch

chine first became as expensive as a certain number of hand sawyers. The resulting rate of return can be compared to the historical data on interest rates that are available and this alternative procedure only requires David’s model to be reorganised a little bit. This alternative procedure requires some information about the relative productivity of hand sawyers and sawmills. In the literature two estimates of the maximum productivity of a sawmill are available. The first states that 60 logs a day could be processed and the second source says that with good winds and employees working overtime a Dutch sawmill had a maximum sawing capacity of about 80 logs a day. On an ordinary day the former number would have been more common. It is reported that 120 hand sawyers were needed to reach a similar production in one day, so it must be concluded that the savings in labour input were considerable.25 It should be remembered though, that winds would not have been strong throughout the whole year so sawing could not take place every day. It was only from wind speeds of 3 to 4 on the Beaufort Scale that could a sawmill start processing.26 Based on 20,454 observations during the period 1951-2006 of the average daily wind speed by the Royal Netherlands Meteorological Institute at Schiphol Airport – their observation point closest to the Zaan region – it can be calculated that for almost half of the year there was not enough or too much wind to use a sawmill properly.27 Obviously, hand sawyers did not work the whole year either. De Vries and Van der Woude estimated that 300 working days per year were common during our period.28 This means that only [(300 x ½) x 120] ÷ 300 = 60 hand sawyers were needed all year around. Returning to the average production costs, information is of course also required about the capital costs associated with running a sawmill. Following David, the opportunity and depreciation costs of a sawmill will be taken into account. Combining this information, we can reformulate the total production costs as follows.29 Note that because the number of hand sawyers has been put at 60, equations 1 and 2 relate to a similar size of annual production. The resulting amounts can thus be compared in order to determine the point at which mechanisation became feasible. This is done in equation 3. 25 De Jong and Schipper, Gebouwd in de Zaanstreek, 28 note 45-3; Boorsma, Duizend Zaanse molens, 36. 26 Van Driel, ‘Hangende zaagramen’, 60-62. 27 Koninklijk Nederlands Meteorologisch Instituut, Daggegevens. Wind speeds were expressed in 0.1 metres per second and have been converted to the Beaufort Scale using Koninklijk Nederlands Meteorologisch Instituut, De complete windschaal. When the wind came from highly variable directions sawing would also have been more difficult, but this could not be explicitly taken into account here. 28 De Vries and Van der Woude, The first modern economy, 616-617. 29 For simplicity’s sake it has been assumed that no or an insignificant amount of capital costs were involved with manual processing.

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Relative prices, markets and consumers  |  169

(1)

Mill = (interest rate x purchase price) + (rate of depreciation x purchase price) + annual labour costs

(2) Sawyers = 60 x 300 x day wage (3) Interest rate = [(60 x 300 x day wage) – annual labour costs – (rate of depreciation x purchase price)] ÷ purchase price

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Now that we have established the formal equation that we want to test, we have to collect the actual historical data. Hand sawyers’ wages for the early modern period have been published by De Vries and Van der Woude.30 Unfortunately, only one estimate of the annual wage bill of a sawmill could be made. The information was taken from an undated seventeenth- or eighteenth-century source and suggests total costs of approximately 1,570 guilders for a master, three workers and a boy. This comes close to the annual income of five ordinary workers that can be based on the De Vries and Van der Woude data. For this reason the annual wage of five ordinary labourers will be taken to represent the wage bill of a sawmill.31 The purchasing price of a sawmill – as Appendix IX documents – was only available from the late seventeenth century onwards. As the available prices do not include foundations, sheds and tools, the price of a fully equipped sawmill can perhaps be put at 12,000 guilders instead of 8,000 guilders. It is assumed here that during the phase in which the sawmill was being designed – and no experience with and economies of scale in constructing sawmills were present – the capital costs were twice as high: 24,000 guilders. The depreciation rate

30 De Vries and Van der Woude, The first modern economy, 610-611. 31 Van Braam, Bloei en verval, 93. The wages correspond to what a Rotterdam sawmill owner was paying his workers in 1816. See Van Kampen, Rotterdamse particuliere scheepsbouw, 171 note 1. Van Kampen stresses that a premium had to be paid for having them work on holidays or at night. Since the comparison in productivity did not include working overtime – which hand sawyers could obviously also do – these premiums have not been taken into account in the analysis.

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170  |  The economic consequences of the Dutch

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of an eighteenth-century sawmill can be put at thirty years.32 Again, during the initial stages of the use of sawmills, depreciation rates may have been higher due to a lack of practice in using sawmills. The present calculation will therefore assume that mills had a life length or a rate of depreciation of twenty years. When we use these figures and the 1580 wages of ordinary labourers (8 stuivers) and hand sawyers (13.75 stuivers), the rate of return can be calculated to have been 44%. In other words, if there was an interest rate of 10% – which probably was not uncommon around this time – processing by sawmill was cheaper than processing by hand. This means that the additional premium was about 34%. The existence of such an additional premium corresponds with the fact that manual processing had to become so costly that it incited entrepreneurs to start researching alternative processing technologies. Being a first-mover was dangerous because one was uncertain about future returns on one’s investment in the research process. After all, it was not unlikely that the investment would yield no return at all. This explains why these entrepreneurs eagerly sought to patent their findings with the States of Holland. Apparently a compensation for their risk – or a risk premium – of 34% was not high enough for these entrepreneurs. By 1590, however, the situation had changed. Building labourers now earned 9.70 stuivers and hand sawyers 21.88 stuivers. The rate of return was 74%, which implied a risk premium of approximately 66%. In 1600 these figures were 12.83 stuivers,

32 In order to determine the rate of depreciation, the average life span of a sawmill has to be reconstructed. It has proven possible to determine the years of construction and subsequent disappearance of 58 sawmills that were built before the year 1800. The average life span of these mills was calculated at 137 years. The well-documented case of one particular mill – the bovenkruier sawmill De Dickert located in Koog – showed that such a modest rate of depreciation could only be realised through regular – and sometimes quite sizeable – investments in maintenance. This conclusion was based on the value of the mill on 23 occasions between the late seventeenth and early nineteenth centuries, which could be reconstructed through the sale of shares in the mill. Although only partial data are available, between 1672 – the year in which De Dickert was first mentioned – and 1809 – when the mill came close to reaching the rest value for which mills were often sold to specialised demolishers who dismantled mills and sold them in pieces – four occurrences of large-scale maintenance could be distinguished. Such a maintenance pattern resembles the pattern found by Reynard for French papermills: owners invested in large maintenance operations only when it was absolutely necessary. Once they did invest, however, this could involve substantial sums of money. All of this means that the life cycle of the mill has to be reduced to (137 ÷ 5) ≈ 30 years. Coincidentally the average life span of the 58 sawmills was identical to the period for which De Dickert was studied. For this reason it will be assumed that the depreciation pattern found for De Dickert was representative of sawmills in general. Based on Couwenhoven, Database duizend Zaanse molens; Couwenhoven, ‘Dickert’; Boorsma, ‘Hoopwerksboek’, 4; and Reynard, ‘Unreliable mills’.

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Relative prices, markets and consumers  |  171

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21.67 stuivers, 72% and 64%.33 The risk premium had thus increased, which must certainly have been a stimulus to a group of savvy entrepreneurs.34 It is during this period that people such as Frans van Bouckelwaert – a timber merchant in the town of Dordrecht – and Cornelis Corneliszoon experimented with alternative means of propulsion, namely horse and wind respectively. They patented their inventions – Corneliszoon actually applied for patents on other inventions as well – but eventually the wind-powered sawmill was found to work best.35 The introduction of the sawmill had a clear twofold effect on the position of hand sawyers. Firstly, the availability of an alternative processing method reduced their bargaining power. The increasing number of sawmills reduced the wages of sawyers relative to building labourers to ratios common during the first quarter of the sixteenth century (see Figure 6.4). The stagnation and subsequent decrease of relative wages was consistent with the development of technology, patenting and the number of sawmills. Secondly, hand sawyers effectively disappeared as a group. The Amsterdam sawyers’ guild was disbanded in 1627 and De Vries and Van der Woude did not find enough wage data in the western Netherlands to continue their wage series after 1665.36 By combining all this information a strong case for induced technical change can be made. Entrepreneurs demanded significant compensation for the risks that they incurred when investing in the search for labour-saving technologies. Once this risk premium became large enough, they were quick to seize the opportunities. From then on hand sawyers with their higher average production costs soon disappeared as a major group in the Dutch workforce. The diffusion pattern of sawmills within the Netherlands provides some additional vantage points from which to elaborate on the mechanisation process. It is clear from the literature that outside Holland most sawmills were to be found in Frisia. The first sawmill was established there in 1647, but it seems that more mills only followed some twenty to thirty years later.37 When

33 De Vries and Van der Woude, The first modern economy, 610-611. See Gelderblom and Jonker, ‘Completing a financial revolution’, 668, for interest rates on the Amsterdam capital market during this period. 34 The risk premium may seem impressive, but a comparison with the returns made by the predecessors of the Dutch East India Company – first-movers in another sector of the Dutch economy – showed that very high returns were also common in other sectors. See Gaastra, Geschiedenis van de VOC, 23-25. 35 Doorman, Octrooien, 45; Doorman, Geschiedkundige aanvullingen, 85-86. 36 Doorman, Octrooien; Doorman, Geschiedkundige aanvullingen; De Vries and Van der Woude, The first modern economy, 633-634; Davids, ‘Patents and patentees’; Kingma, ‘De wereld van het hout’, 65-76. 37 Bunskoeke, ‘Friese zaagmolens’, 38, 46, 54-57; Van Prooije, ‘Verspreiding van houtzaagmolens’.

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172  |  The economic consequences of the Dutch

6.4

2.40

this is combined with wage data for the eastern Netherlands from 1650 and 2.20 1680, rates of return of 71% and 93% are found.38 These figures do not dif2.00 fer much from those found for Holland during the late sixteenth and early 1.80 seventeenth centuries. That the risk premium had to be somewhat higher before 1.60 mechanisation set in, can probably be explained by the fact that during the late sixteenth century entrepreneurs in the Zaan region had more 1.40 experience with industrial milling than the Frisians had during the second 1.20 of the seventeenth century. Demand for sawn timber may also have been half smaller and less predictable in Frisia than in Holland. In the eyes of Frisian 1.00 1500 1520 it 1540 1560 1580 1620 1640 1680 1700 entrepreneurs may therefore have 1600 seemed more risky1660 to establish a sawmilling industry of their own. Holland England

Figure 6.5

Wages of sawyers in southern England and the Netherlands, 1500-1700 (in grams of silver)

6.5

16 14 12 10 8 6 4 2 0

1500

1550

1600

eastern Netherlands

1700 England

Source: Rogers, A history, IV, 514-523, and V, 629, 664-670; De Vries and Van der Woude, The first modern economy, 610-613.

6.6

1691

1641

1591

1541

0

Holland

1791

10 38 De Vries and Van der Woude, The first modern economy, 612-613. It was assumed in the former case that the price of the mill had decreased to 21,000 guilders but that it was still 8 written off in twenty years. In the latter case the decrease has been allowed to continue to 18,000 guilders and entrepreneurs were then able to make use of their mill for thirty years. 6 When it is taken into account that the Frisian economy was more developed than the other eastern provinces, which is not an unreasonable assumption, wages in this province may have been slightly higher than the average for all the eastern provinces. Raising all wages by 4 10% would result in rates of return of 78% and 102%. See Faber, Drie eeuwen Friesland, for the Frisian economy. 2

1741

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western Netherlands

1650

England

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Relative prices, markets and consumers  |  173

When we take English wage data into account, it becomes clear that discrepancies between the wages of sawyers and building labourers as large as those in the western Netherlands did not exist in southern England during the sixteenth and seventeenth centuries. Only rarely were sawyers’ wages 60% higher than the wages of building labourers (see Figure 6.4). Also, in absolute terms, large differences existed between sawyers’ wages in the western Netherlands and southern England. Figure 6.5 clearly shows that at times, the Dutch sawyers earned twice as much in nominal terms as their colleagues in England. The fact that English entrepreneurs wishing to start processing mechanically had to ship a sawmill from the Netherlands – where in all probability they could be produced cheapest given the economies of scale present there – and were less experienced in using the machine, meant that around 1700 a purchasing price of 18,000 guilders and a depreciation rate of twenty years could probably be taken as variables alongside the wages. Together these data imply a rate of return of about 85%, which falls within the range of establishing sawmills in Frisia.39 Given that southern England was located somewhat farther from the Zaan region than Frisia, the English entrepreneurs would probably have deemed it even more risky to shift to the unknown technology. At this rate of return they apparently preferred to continue as they were used to. Unfortunately the series of sawyers’ wages does not extend into the eighteenth century. The data presented in sections 6.4 and 6.5 show that around the mid-seventeenth century overall population growth halted for about 70 years and that the merchant marine did not increase much in size from the last decades of the seventeenth century onwards. Presumably the stagnation in the shipbuilding industry prevented sawyers’ wages from changing more significantly from those of ordinary building labourers. The fact that at the end of the seventeenth century sawyers’ wages were approximately 50% higher than building labourers’ wages can therefore be exploited to estimate sawyers’ wages in southern England around the mid-eighteenth century. It can further be assumed that a sawmill would now cost approximately 16,500 guilders and that it would last for thirty years. The model would then predict a rate of return of 116% for using an ordinary Dutch sawmill. This figure would probably have been higher in London, but since the mill that was destroyed during the 1760s made use of steam technology – not surprising for a country that was one of the pioneers of steam – the capital costs would have been higher and the rate of return subsequently somewhat lower. Raising

39 The average silver wage in 1693 in Cambridge and Oxford (6.5 grams of silver) was converted to Dutch guilders through the silver content of the guilder (i.e. 9.61 grams of silver). See Appendix II for references. The silver wage paid to a hand sawyer in southern England amounted to 9.16 grams in 1693.

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174  |  The economic consequences of the Dutch

wages by about 60% to take into account the higher London wage level and doubling the capital costs to take into account the use of steam technology would reduce to the rate of return to 92%: a rate that would still be appealing to many first-movers. London – where labour was more expensive – was thus becoming the most likely location in which to find initiatives for shifting from manual to mechanised processing.40 Following this same line of reasoning can provide an idea of why steam sawmills were introduced in England much earlier than in the Netherlands. Dutch historiography has argued that the industrialisation of the Netherlands took a long time because of input prices and the institutional and economic setting. The first refers mainly to the fact that coal prices were higher than in other industrialising regions. The second includes many variables such as guilds, peer pressure, regulated processing costs, redistribution of income, taxation, regulation and transportation. For a long time these combined factors made the capital costs associated with steam technology higher than those of established technologies. Since the situation in England was more favourable towards steam technology, the cost curve of steam-powered sawmills could more easily become lower than the cost curve for manual labour or wind-powered sawmilling in the Netherlands.41 Now that an explanation of the introduction of sawmills in the Netherlands and the continued use of manual labour in England has been provided, sections 6.4 and 6.5 will document how the English coped with not having a sawmilling industry of their own.

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6.4 The construction industry The demand for timber depended partly on demographic developments, partly on the economic climate. This section will discuss the effect that developments in population size had on the demand for such things as houses, firewood (heating, lighting and cooking) and furniture. It will focus on housing and ‘furniture’ because the Low Countries and England largely depended on their respective supplies of peat and coal instead of firewood. Elsewhere these fuels had to compete with the more abundant firewood.42 A close relationship must have existed between the size of the population and the number of houses. The number of hearths, for example, is usually

40 The wage level in Maidstone (7.4 grams of silver) was used. See Appendix II for references. 41 Mokyr, Industrialization; Griffiths, Industrial retardation; Bos, ‘Factorprijzen’; Van Zanden, ‘De introductie van stoom’. 42 The Dutch case would suggest adding an environmental component as well. In many parts of the Low Countries – due to the low surface level – timber was of crucial importance in diking and pile driving. See Buis, Historia forestis, II, 475-493; Bruijn, ‘The timber trade’, 127-128.

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1500

1520

1540

1560

1580

1600

1620

Holland

1640

1660

1680

1700

England

Relative prices, markets and consumers  |  175

6.5

taken to have corresponded to a certain number of inhabitants. This meant that when the population size increased, new houses had to be built. In addi16 tion to the demand for new housing, existing housing had to be maintained 14 when necessary. Of great importance – although of an incidental nature – would also have been the Great Fire of London (1666). 12 10 Figure 6.6 shows that the English population grew about threefold be8tween 1541 and 1801. This was an almost continuous process that was only interrupted between the 1650s and the late seventeenth century. Local growth 6 patterns could differ to quite an extent from this national pattern. London’s 4 population, which increased almost elevenfold, grew throughout the entire 2 period. Growth in Holland followed a somewhat similar pattern, but from 0 the was unable 1500mid-seventeenth 1550 century onwards 1600 the total population 1650 1700 to grow any further. There was actually decline until the mid-eighteenth centuwestern Netherlands eastern Netherlands England but from ry. Amsterdam managed to grow until the early eighteenth century, then stagnation set in. The population of the city had grown about tenfold.43

Figure 6.6

Population size of Holland and England, 1541-1801 (in millions)

6.6

10 8 6 4

Holland

1741

1691

1641

1591

1541

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0

1791

2

England

Source: Wrigley et al., English population history, Appendix 9; Dataset constructed by Van Zanden, Reconstruction.

6.7

Unlike shipbuilding, construction was a sector that did not have to worry

10,000.0 43 De Vries, European urbanization; Van Leeuwen and Oeppen, ‘Reconstructing’; Lucassen and Lourens, Inwoneraantallen. 1,000.0 100.0 10.0 1.0

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176  |  The economic consequences of the Dutch

about foreign competition. After all, houses were non-transportable. Besides, as the housing sector was not standardised, each building had its own characteristics. Those parts that could perhaps have been constructed elsewhere – window casings for example – were only turned into prefabricated parts during the late nineteenth century.44 In all, this meant that despite the high wages in Holland and England, all construction took place locally and was performed by local craftsmen. However, timber for house building encountered competition from the production of bricks, which, along with brick makers and masons, became increasingly important in house building.45 The consequence of this localised construction industry was that one could establish a sawmilling industry despite the fact that foreign entrepreneurs were cheaper in constructing houses or parts of them. Foreign labour being cheaper was irrelevant as outsourcing was not an option. One could thus continue sawing by hand – or change to sawmills when that became more efficient – without being afraid of foreign competition. In England, where oak had traditionally been used in construction, fir was increasingly used as oak became too expensive. This process was not unique to England, however. It can also be observed in the Netherlands. Thinly sawn oak, so-called wainscot, continued to be used as wall boarding.46 As fir was not available in large supplies in England or Holland, it had to be imported. Both importing countries were faced with the question of in what form the timber had to be imported. The following will first discuss the import of fir and then the import of oak. Although there would have been a need for semi-processed timber – balks were used in construction as beams for example – it was not necessary to import all timber in the form of logs or balks. One option would have been to exploit the comparative advantages of foreign regions and partially process the timber where this could be done most efficiently. Sawing timber was a particularly labour-intensive operation if done by hand and probably did not require many skills. It could thus also be performed in labour-abundant economies where labour was relatively cheap. We would therefore expect the English to have imported relatively small numbers of balks, as high wages would have made sawing in England a rather expensive undertaking. The final refining of the timber still had to be done locally in high-wage England where consumers did not have any other ways of getting it processed more cheaply. The Dutch, on the other hand, were also faced with the high-wage problem, but had the production facilities that enabled them to save on la-

44 See Knotter, Economische transformatie, 112, for Amsterdam. 45 De Vries and Van der Woude, The first modern economy, 303-305. 46 Davis, English shipping industry, 19; De Jong and Schipper, Gebouwd in de Zaanstreek, 64; Janse, Houten kappen, 249.

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bour and process large numbers of balks mechanically. We would thus expect that they imported relatively large amounts of unprocessed timber. There is ample evidence that this was indeed what happened. As the English demand for timber increased in the course of the seventeenth century, merchants had to look for new supplies of fir. As the English were not yet as established in the Baltic as the Dutch were, the obvious market from which to buy this timber was nearby Norway.47 The Norwegians mainly exported sawn timber in the form of deals. As overall demand for Norwegian timber increased, so did prices. Whereas the nominal and silver prices for a great hundred deals in Kristiansand in southern Norway had been decreasing from 1635 onwards, from the late 1660s to 1700 prices doubled. The increase in timber prices during the latter period was larger than the increase in the average price level.48 As a consequence of these rising prices, alternative suppliers in Germany and the Baltic became increasingly interesting to the Dutch. As a result, the Dutch share in Norwegian timber exports dropped during the seventeenth and eighteenth centuries.49 The Sound toll registers are an important source that allow us to illustrate the above points in a more quantitative manner. In order to test this hypothesis, data on the entire Baltic export of balks have been collected for every fifth year for the period 1665-1795 (see Appendix VIII).50 Although the export of balks had already increased during the 1680s and 1690s, the Great Nordic War hit the trade hard. When the war came to an end, exports of balks were once again resumed. The number of exported balks skyrocketed and reached a maximum of 587,100 pieces in 1790. The Dutch dominated the trade: from 1690 until 1745 their share had generally been higher than 90%. From midcentury onwards their share declined, but only by 1790 did the English overtake the Dutch as the most important importer of Baltic balks. We have to 47 Kent, ‘Anglo-Norwegian timber trade’; Tveite, Trelasthandel; Kjærheim, ‘Norwegian timber exports’; Kent, War and trade. 48 Tveite, Trelasthandel, Appendix E; Grytten, ‘A consumer price index’. In 1688 the Norwegian government (i.e. the Danish King) reduced the legal quantity of timber that could be exported. This measure has also been credited with causing the rise in Norwegian timber prices. The timing of the two processes, however, does not match. Although the 1688 measure does indeed seem to have driven up prices (temporarily), prices had already been increasing for some decades. See Tveite, Trelasthandel, 23-26, 353-363. 49 Tveite, Trelasthandel; Lesger, ‘Lange-termijn processen’; Ebeling, Der Holländerholzhandel. 50 Bang and Korst, Tabeller; Johansen, Shipping and trade. Only those cargos have been included that referred specifically to a certain amount of balks. Note that Norwegian and German timber exports are not included in these figures. As the former primarily exported processed timber and the latter unprocessed timber this influences our eighteenth century findings. By 1700 the English had become the main consumer of Norwegian timber, which further increased their imports of processed timber, whereas trade with the Rhine hinterland increased Dutch imports of unprocessed timber. The figures presented in Figure 6.7 and Table 6.1 therefore underestimate the importance of processed timber for England and unprocessed timber for the Netherlands.

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178  |  The economic consequences of the Dutch

bear in mind, though, that Holland was relatively small in comparison to the population of England. When corrected for the size of the population, the difference between England and Holland becomes even more staggering. Figure 6.7 expresses the population in relation to imported balks (population of balk importing region: imported balks) in England and Holland as the ratio between the two countries. Had the Dutch and English imported amounts in proportion to their population size, the ratio would have been 1. The figure clearly shows that the Dutch imported far more balks than the size of their population could justify. Figure 6.7 does show a downward trend during the second half of the century, but the ratio stayed well above ten: the Dutch imported ten times as many balks per capita compared to the English. This, therefore, is a good illustration of the fact that Holland’s sawmilling industry allowed for large-scale imports of unprocessed timber and it shows as well that the English shunned the import of this labour-intensive product. The same point can also be made the other way around. As the English did not have a sawmilling industry, we would expect them to import disproportionally more sawn timber. Due to the number of entries, the sample had to be restricted to the years 1675, 1700, 1725, 1750, 1775, 1785, 1790 and 1795 (see Appendix VIII). All exports of deals (deler), battens (braedder) and planks (planker) out of the Baltic were included. Only during the second half of the century did total English imports of sawn pieces overtake Dutch imports. Per capita differences were much smaller than was the case with balks. The combined data on balks and sawn pieces also show that England imported far more sawn pieces vis-à-vis balks than the Dutch (see Table 6.1). These data thus clearly illustrate that England had adjusted its timber imports to its economy. Let us now turn to oak. A timber product that has already been mentioned is wainscot. These thinly sawn oak boards were probably more difficult to produce and almost certainly required some specific skills as well. Although next to nothing is known about how wainscot was produced, the Dutch clearly seem to have had an advantage in producing it. Some evidence from Amsterdam from the 1620s seems to indicate that sawing oak was the last part of the timber refining process that the sawyers’ guild was able to monopolise with some success. But increasingly their task was taken over by specialised paltrok sawmills.51 Wainscot logs were produced by sawing high-quality oak logs in half (lengthwise). These wainscot logs were subsequently sawn into wainscot boards. The Dutch mainly imported wainscot logs from Germany, sawed them into wainscot boards and then exported them to England.52

51 Aten, Politiek en economie, 252 (also note 229), 253 (also note 235); Kingma, ‘De betekenis’, 133. 52 Schillemans, ‘De houtveilingen’, 235-237, 264-268; Porsius and De Munck, ‘Over hout’, 143-144.

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179

174

169

164

159

154

Holland

England

Relative prices, markets and consumers  |  179

Figure 6.7

Ratio England:Holland of number of people per balk and sawn piece, 1665-1795 (logarithmic axis)

6.7

10,000.0 1,000.0 100.0 10.0 1.0 0.1 0.0 1660

1680

1700

1720 balks

1740

1760

1780

1800

sawn pieces

Source: Based on Bang and Korst, Tabeller; Johansen, Shipping and trade. Note: Ratios for balks for the years 1665, 1690, 1695 and 1705 were missing because for one or both of the countries imports were 0. 6.8

3,5006.1 Table

1810

1790

1770

1750

1730

1710

1690

2,500 Year Holland England England/Holland 1675 98.47 192.90 1.96 2,000 1700 5.04 184.87 36.69 1,500 1725 0.98 16.01 16.32 1750 4.05 5.93 1.46 1,000 1775 2.34 6.59 2.82 500 1785 3.25 9.05 2.79 1790 1.55 6.49 4.20 0 1795 2.08 9.40 4.51

Source: Based on Bang and Korst, Tabeller; Johansen, Shipping and trade. Note: The high values for 1675 and 1700 are the result of the small number of balk imports during these years. 6.9

2,500

20

2,000

15

1,500

10

1,000

timber rafts

The English overseas trade statistics compiled by Schumpeter contains a se3,500 30 ries of the number of wainscot boards that were imported into England (see 3,000 Figure 6.8). According to Dutch authors England was an important25market wainscot

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Ratio 3,000 of sawn pieces to balks in Holland and England for seven selected years

5

500

790

780

770

760

750

740

730

720

710

700

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180  |  The economic consequences of the Dutch

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for Dutch wainscot, so there is good reason to assume that at least some of these imports originated from Holland. Although the English Navigation Laws had initially forbidden such trade, the Treaty of Breda (1667) changed this. From then onwards the import from Holland of products that were of Dutch or German growth, production or manufacture was permitted.53 As oak was available in large quantities in central European regions and was floated from there to coastal regions, suppliers could be found in the German North Sea towns and in Holland. Tveite’s detailed study of the 1700 English customs accounts has shown, however, that Holland was then the sole supplier of wainscot boards to England.54 Of course it was also possible to import wainscot from other regions, but a sample taken from the Sound toll registers shows that English wainscot imports from the Baltic had almost disappeared by 1700. Only from the late 1750s onwards did a recovery set in.55 Figure 6.8 shows that imports increased until 1723 and then a process of decline set in that lasted until the early nineteenth century, by which point the trade had almost disappeared. The literature does not provide a straightforward explanation for this decline, but perhaps consumer tastes had changed. Wainscot boards were a luxury product for which the market would have been relatively thin. Taste and fashion would have played an important role in determining overall demand. Mahogany possibly overtook the place of wainscot as the eighteenth century progressed. It seems that as imports of mahogany from the Caribbean became more regular from the first decades of the eighteenth century onwards, a new class of English furniture makers, working with mahogany, entered the scene.56 Unfortunately no data on English mahogany imports are available, so it remains difficult to pinpoint the exact relationship between wainscot and

53 Harper, English Navigation Laws, 69, 407; Porsius and De Munck, ‘Over hout’, 144. 54 Tveite, Trelasthandel, 187-189; Kent, War and trade, 50 note 6, 57 note 6. England imported £10,624 of timber from Holland. Imports of staves and large oak boards were worth £1,100. The remainder or £9,524 concerned wainscot boards. This amount almost wholly covers the figure of £9,678 given by Schumpeter, English overseas trade statistics, Table 15. 55 For the period 1562-1657 the summary statistics in the Sound toll registers differentiated between the types of exported timber. Baltic exports of wainscot (vognskud) witnessed a considerable decline from c. 1620 onwards. For a sample of every tenth year for the period 1670-1780 I have subsequently noted all wainscot exports to England. The 1562-1648 data were digitalised by Tossavainen, ‘Dutch forest products’ trade in the Baltic’, Appendix D. The 1649-1780 data were taken from Bang and Korst, Tabeller. Information concerning 1785, 1790 and 1790 was available in Johansen, Shipping and trade, but referred to total Baltic exports of wainscot only. It is unlikely that wainscot logs or boards were included in another category as it concerned an expensive high-quality oak product. Customs officials would have been anxious to charge the wainscot correspondingly. The English customs accounts, for example, also distinguished between ordinary fir timber and oak. 56 Symonds, ‘Early imports of mahogany’ (October); Symonds, ‘Early imports of mahogany’ (December); Ebeling, Der Holländerholzhandel, 205, 210-211; Van Prooije, ‘De verwerking’, 14-16; Van Prooije, ‘Dordrecht’, 150-154; Zinnkann, Furniture woods.

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10,000.0 1,000.0

Relative prices, markets and consumers  |  181 100.0 10.0

mahogany. There are, however, a number of sources that can shed light on the linkages between the Netherlands and England concerning the market 1.0 for wainscot: the number of timber rafts coming from Germany to Holland, the number of timber auctions in the Zaan region and the number of paltrok 0.1 sawmills that specialised in producing wainscot. It will be argued that these show 0.0 that the decreasing English1720 wainscot imports from the Netherlands 1660 1680 1700 1740 1760 1780 1800 were a consequence of changingbalks English demand rather than problems on sawn pieces the supply side.

Figure 6.8 6.8

English imports of wainscot boards, 1700-1808 (in hundreds of 120 pieces) 3,500 3,000 2,500 2,000 1,500 1,000 500

1810

1790

1770

1750

1730

1710

1690

0

Source: Schumpeter, English overseas trade statistics, Tables 16 and 17. Note: The 1700-1780 figures were counted in hundreds, but the 1772-1808 figures in inches. For 6.9 1775 and 1780 entries in both measures were available. The average ratio has been used to con-

3,500

30

3,000

timber rafts

Three reasons can be thought of that could have made the Dutch25reduce their2,500 wainscot exports: reduced access to German supplies, a decrease in 20 processing 2,000 capacity and problems in international trade. To start with the 15 which latter, the eighteenth century does not come to mind as a period in 1,500 international trade was hampered more than in other times. Figure 10 6.13 does 1,000 not show a reduction in Dutch shipping capacity either. Getting suf5 ficient500 supplies from Germany, however, might have been problematic as fighting0 took place in Germany and the Low Countries during the0War of the Spanish Succession (1701-1714), the War of the Austrian Succession (1740-1748) and the Fourth Anglo-Dutch War (1780-1784). wainscot

1790

1780

1770

1760

1750

1740

1730

1720

1710

1700

wainscot

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vert the inches to hundreds.

timber rafts

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182  |  The economic consequences of the Dutch

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A closer insight can be gained through the Dutch river tolls, which have been studied by Dutch historian Van Prooije.57 Based on the account books of these tolls, he has constructed a table of the total number of timber rafts that were annually floated to the Netherlands. As the English data are quoted in pieces it would be preferable to convert the number of timber rafts to a quantity of timber. However, this is not possible due to some peculiarities of the data. In order not to make things more difficult, I have chosen to assume that the height of the rafts and the fir-oak ratio of logs in the rafts remained constant over time or changed only slowly.58 With regard to surface size of the rafts it can be shown for the period 1655-1678 that there was a close link between the total number of rafts and the total amount of timber transported.59 An inspection of the figures suggests that such a relationship probably also existed during much of the eighteenth century. Since the height of the rafts has been assumed to be constant, the average surface size must thus also have been constant. The number of rafts was therefore used as a proxy for the volume of timber imported.60 Although year-to-year fluctuations were not perfectly correlated, in the long run there seems to have been a close connection between the number of German timber rafts destined for the Netherlands and the amount of wainscot imported into England (see Figure 6.9). Unfortunately the data for the timber rafts are incomplete. We can clearly see that during the wars mentioned above, the number of timber rafts changed dramatically. Only during the Fourth Anglo-Dutch War did the number of rafts increase as Dutch supplies from the North and Baltic Seas were cut off and alternative supplies were sought. Also, in 1808, the town of Nijmegen on the River Waal alone saw 81 timber rafts passing by whereas during the 1650-1796 period the maximum annual number of rafts had been 41.61 These examples suggest that the German hinterland was still flexible enough to adjust to Dutch demand and produce large supplies of timber. Faltering demand 57 Van Prooije, ‘De invoer van Rijns hout’. 58 Van Prooije used data from different tolls that each expressed the quantity of timber in their own measure. As yet, these measures cannot be converted to a common measure. Besides, as frequently only the surface of the raft was measured it would be difficult to convert this to a volume. For those eighteenth-century years for which data are available, rafts passing through the River Waal usually had a height of 4 to 5½ feet and those passing through the River Rhine were closer to 2 feet. Even if these figures were representative, this would leave us with a volume and not a precise number of (oak) logs. Another assumption on the fir-oak ratio would be needed to determine the amount of oak logs in the raft. To sum up, converting rafts to a certain number of logs is difficult and it would be hard to check the accuracy of the outcome. See Van Prooije, ‘De invoer van Rijns hout’, 42-43; Lesger, ‘Lange-termijn processen’, 132-133. 59 Van Prooije, ‘De invoer van Rijns hout’, Appendices I and II. 60 Van Prooije, ‘De invoer van Rijns hout’, 42-43, 54-61. 61 Van Prooije, ‘De invoer van Rijns hout’, 55 note 91.

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2,000 1,500

Relative prices, markets and consumers  |  183

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from0 processors and/or consumers would then have been the main cause for the decreasing number of rafts.

Figure 6.9 6.9 English imports

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of wainscot boards (hundreds of 120 pieces) and the number of German timber rafts to the Netherlands, 1700-1796

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Source: Schumpeter, English overseas trade statistics, Tables 16 and 17; Van Prooije, ‘De invoer van Rijns hout’, Appendix 1.

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Evidence of the number of timber auctions in the Zaan region can also42be used 3,500 to study the relationship. Contemporaries preferred to keep the size of an auc36 tion 3,000 to a certain size so that when the supply was larger than the common size of an2,500 auction, the number of auctions was increased. The number of auctions, 30 therefore, is perhaps a somewhat more accurate proxy for the amount of tim2,000 24 ber than the number of rafts.62 A large portion of the timber auctioned also came1,500 from Germany. This was not surprising, as Zaan merchants had18initiated 1,000 trade with Germany. The increased trade with the Baltic during 12 the timber the 1680s500 and 1690s, as observed above, is also visible in the place of origin. Until 6 1714, however, it was the Rhine region that became increasingly dominant as a 0 0 place of origin. The place of origin of the timber is known for 91% of the value of the imports (1655-1714). On average the Rhine region was dominant with 76% of overall imports.63 Againwainscot the long-term auctions processes seem to correlate.

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6.11 62 Schillemans, ‘De houtveilingen’, 204, 262, 265. 63 Schillemans, ‘De houtveilingen’, 241.

timber rafts

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6.10

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam 40University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. 10 Created from wisc on 2024-03-01 04:08:57.

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184  | 1,500 The economic consequences of the Dutch

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3,000 Source: Van Prooije, ‘De invoer van Rijns hout’, Appendix 1; The Zaan figures are my interpreta80 tion of2,500 Couwenhoven, Database duizend Zaanse molens. 6.12 60 2,000 wainscot

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60

15 30

sawmills

80 number The number of German timber rafts going to the Netherlands and the 20 wainscot-producing sawmills in the Zaan region, 1700-1796

6.11 of

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0 van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam0University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. 1,500 Created from wisc on 2024-03-01 04:08:57. 40

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Relative prices, markets and consumers  |  185 timber rafts

sawmills

Figure 6.12

English imports of wainscot boards (hundreds of 120 pieces) and the number of wainscot-producing sawmills in the Zaan region, 1600-1810

6.12

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Source: Schumpeter, English overseas trade statistics, Tables 16 and 17; The Zaan figures are my interpretation of Couwenhoven, Database duizend Zaanse molens.

The last piece of evidence consists of the number of specialised wainscot 1,200 mills. Their numbers increased until about 1730 (see Figures 6.11 sawing and 6.12). The data are for the Zaan region where the highest concentration 1,000 of Dutch sawmills could be found. Clearly the decrease in their numbers 800followed after the English imports had started to decrease. The picture only that emerges is that as English demand for wainscot decreased Dutch entre600 preneurs had to change their businesses. Obviously, the merchants quickly diminished their timber imports, but understandably the reduction in size 400 of the production capacity took somewhat longer. Investment in new facilities200also stopped as the flat top in Figures 6.11 and 6.12 illustrates. Also owners would no longer have invested in the maintenance of their mills. 0 Mutual more rapidly,1800 have 1550competition 1600would slowly, 1650 and during 1700the 1740s 1750 driven out the less competitive producers. There seems to have been a time English Dutch

70,000

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balks

6.14

merchant sailors

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6.13

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186  |  The economic consequences of the Dutch

lag of some twenty years before the number of Zaan sawmills finally fell.64 The conclusion must thus be that relative prices in Holland favoured the processing of high-quality types of timber such as wainscot on the specialised paltrok sawmills. English merchants were aware of this and, instead of establishing a domestic industry, they turned to the Republic in order to satisfy domestic demand for wainscot through trade. When the preferences of English consumers changed this particular section of the Dutch timber processing industry came under pressure and subsequently went into significant decline.

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6.5 Shipbuilding Holland and England were the greatest early modern shipping nations. Their fleets ruled the seas during the seventeenth and eighteenth centuries. Estimates of the size of their merchant fleets are available for several years and are collected in Figure 6.13. The English fleet numerically became the largest around the mid-eighteenth century. The construction and maintenance of such a quantity of shipping tonnage obviously required large amounts of timber. Economic trends determined the amount of timber that was necessary for making things as ships, barrels, warehouses, factories and farms.65 The number of ships can be used as a proxy for the economic trend as it was closely related to the size of shipping – the carrying and storage capacity in the form of warehouses and containers – and fisheries – fishing capacity and the number of barrels needed to store the fish in. What was needed ultimately, of course, was cargo space for the merchant marine and men-of-war for the navy. Until the mid-seventeenth century when the ship-of-the-line came into use, the navy did not use specialised ships but simply turned merchants’ vessels into naval vessels when necessary. Merchants and the navy had four ways of obtaining ships: confiscating, renting, building domestically and buying abroad. Notice that unlike housing, ships are in fact a tradable. They could thus easily be imported from abroad if prices allowed this.

64 Ebeling, Der Holländerholzhandel, shows that from c. 1740 the quantity of wainscot auctioned in Dordrecht temporarily increased from zero to reach a peak in 1767, from when decline set in. This ‘redirection’ of trade within the Netherlands did not cause the decline in Zaan wainscot processing because timing and size did not match. Van Prooije, ‘Verspreiding van houtzaagmolens’, showed that the total number of sawmills in the southern part of Holland increased by a mere nine sawmills, whereas the number of specialised paltrok sawmills in the northern part of Holland alone decreased by a total of 60. Other factors must thus have been responsible for the decline of this industry. 65 Buis, Historia forestis, II, 475-485; Bruijn, ‘The timber trade’, 127-128.

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wainscot Relative prices, sawmills markets and consumers  |  187

Figure 6.13 6.13 Tonnage (x

1,000) of Holland’s and England’s merchant marine, 1550-1800

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Source: Davis, English shipping industry, 7, 10, 15, 25, 27, 33, 403-406; Lesger, ‘Lange-termijn processen’, 118; Zahedieh, ‘New World resources’, 512. Note: The Dutch figures for 1636 and 1750 do not include the vessels of the East and West India Companies.

balks

the ships of neighbouring countries during wars was a well-established practice. Many ships, however, were also lost in times of war.66 As 70,000 were not always at war with each other, this would not 280,000 countries have yielded a structural supply of vessels. Renting and buying abroad, of course, only 60,000 240,000 worked as long as foreign cargo space could be rented or purchased at com50,000 200,000 petitive rates. For a very long time the Dutch had been able to provide exactly 40,000 this. Their shipyards initially had a great advantage in building160,000 ships. During the 30,000 seventeenth century the single most important producer 120,000 was the Zaan region followed by Amsterdam and Rotterdam.67 During most of the century 20,000 80,000 nobody could compete with the cheap Dutch vessels. Their advantage was fourfold: 10,000 the design of the merchant vessels was superior, ships 40,000and construction had been standardised, the Dutch used fir instead of0oak and they 0 had their1730 timber1740 sawn on example1790 that embodied all these 1750sawmills. 1760 The 1770best 1780 1800 68 advantages was probably the flyboat. The result was that Dutch ships were merchant sailors balks much cheaper than foreign ships. In 1669, for example, one paid £800 in

merchant sailors

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Confiscating 6.14

66 Davis, English shipping industry, 51 (also note 6), 86, 315-316. 67 De Vries and Van der Woude, The first modern economy, 296-300. 68 Wegener Sleeswyk, Het fluitschip.

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188  |  The economic consequences of the Dutch

Holland and £1,300 in England for an identical ship built there. In 1676 the cost price per ton was about £4.50 in Holland and £7.13 in England.69 The effect of this was that many foreign merchant vessels were actually built in the Republic. In 1697, for example, out of ten large vessels that had Christiania (Oslo) as their homeport, seven were built in Holland. England was also an important destination for vessels built in Holland.70 With cheap alternatives available on the other side of the North Sea, the English traditionally purchased a large proportion of their fleet abroad. Around 1654 foreign ships probably constituted no less than a third of total tonnage. In 1675 this was probably closer to half the fleet.71 The Dutch share in these foreign-built ships would have been high. Gradually, however, the American colonies also started to be a supplier of cheap cargo space, especially to the English merchant marine. Their advantage was their proximity to large supplies of timber and the high productivity of their labour supply. The latter was caused by the fact that labour scarcity had made them turn to labour-saving devices such as the sawmill from the early seventeenth century onwards.72 By 1730 one out of every six English ships was built in the colonies and figures for 1760 and 1774 show that this had increased to a quarter and a third respectively. The most important shipbuilding region was New England.73 Zahedieh showed that during the 1680s a 130-ton vessel cost £6.25 per ton there, whereas it cost £8 in England. We should be able to compare these values to the 1676 source for Holland. Given that there would have been some inflation during these years – in Holland the price level increased by about 10% between 1676 and the 1680s – it turns out that New England was about 25% more expensive than the Dutch. Importing ships from New England, however, offered the advantage of loading them with colonial goods (e.g. tobacco, cotton and sugar) for which high transportation costs would have otherwise had to be paid. Another example of the cost differential between England and New England is available for the 1770s. By now, the gap between the two had increased even further. A 200-ton vessel then cost £6.95 per ton in New England and £12-14 in England.74 Other sources also stress the cost advantage of the American shipbuilding industry. In 1700 the New York governor reported that the Bostonians claimed that their production was 40% cheaper than the English. Other eighteenth-century observers

69 Van Kampen, Rotterdamse particuliere scheepsbouw, 80. 70 Van Kampen, Rotterdamse particuliere scheepsbouw, 82; Davis, English shipping industry, 13-14, 53-57, 60-66. 71 Davis, English shipping industry, 52. 72 Zahedieh, ‘New World resources’. 73 Davis, English shipping industry, 68; Goldenberg, Shipbuilding in colonial America. 74 Zahedieh, ‘New World resources’, 521.

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Relative prices, markets and consumers  |  189

also claimed that colonial vessels were £2 to £4 cheaper per ton.75 The confiscation and use of foreign ships did not contribute to England’s domestic timber demand. In the case of the navy, strategic considerations – the extent to which one wanted to be dependent on foreign supplies of naval vessels – might have played a role in developing local construction. Although the English Navy always argued that it needed to be independent of foreign powers, some experiments were carried out during the eighteenth century by purchasing naval vessels in the Americas. As with merchant vessels, naval ships were also much cheaper in the colonies. A 24-gun frigate of 560 tons built in 1748 cost £6 per ton in Boston, whereas a sample of 10 identical vessels (1740-48) averaging 506 tons cost £8.20 in England. In the following year, a 44-gun ship of 863 tons from New Hampshire cost £9.15 per ton whereas a sample of ten identical ships – 805 tons (on average) during the period 1744-1748 – cost £10.35 in England. The colonies, however, never became a major supplier; the bulk of the fleet was still constructed on English wharfs.76 Although many ships were thus imported, we have to realise that the bulk was still constructed in England itself. The English shipbuilding industry actually flourished and the Dutch gradually lost their advantage as the English learned how to build the ‘Dutch’ ships themselves. The new shipyards were concentrated in north-eastern England.77 The Figure on English shipping tonnage presented above shows that the size of the English fleet increased substantially during the latter half of the eighteenth century. This would have required substantial imports of timber. In all probability Norway could no longer provide the required timber in large enough quantities, so England then turned its eye to the Baltic.78 We have seen earlier that the imports of unprocessed and semi-processed timber increased rapidly from c. 1740 onwards, so the question could be raised of to what extent a causal relationship existed between the two. Data on the number of sailors on foreign-going and coastal vessels are available for 1686 and 1736-1792 since a sixpence levy was taken from the wage of every mariner in order to fund the Seaman’s Hospital in Greenwich. Manning ratios increased from 7.0 tons per man in 1686 to 11.0 tons in 1773 and 17.7 tons in 1800. If we assume that growth was a gradual process – so that year-to-year changes were small – the number of sailors could very well 75 Goldenberg, Shipbuilding in colonial America, 33, 95. 76 Goldenberg, Shipbuilding in colonial America, 108-116; Gwyn, ‘Shipbuilding for the Royal Navy’, 621-622. Also see Albion, Forests and sea power. 77 Davis, English shipping industry, 13-14, 53-57, 60-66; Scammel, ‘British merchant shipbuilding’. 78 Åström, ‘English timber imports’; Åström, ‘North European timber exports’; Ahvenainen, ‘Finnish sawn timber’.

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600 400

190  |  The economic consequences of the Dutch 200

0 proxy1550 for

1600 1650 1700 the number 1750 of sailors1800 total tonnage. The figures show that in all Englishbetween 1686 Dutch sectors except the Navy decreased and the 1740s before starting a growth process that lasted until 1792. Differences in tonnage between 1686 and 1740 might have been smaller than the number of sailors suggests as manning ratios improved and growth in tonnage from the 1740s onwards might therefore also have been somewhat larger.79

Figure 6.14

Merchant sailors and balks imported from the Baltic, 1730-1795 70,000

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Source: Bang and Korst, Tabeller; Johansen, Shipping and trade; Starkey, ‘The market for seafarers’,

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40-41.

Figure 6.14 compares the number of sailors to the number of balks imported from the Baltic.80 There seems to have been a close relationship between the two. The overall trend was one of growth, but the effects of the War of the Austrian Succession (1740-1748), the Seven Years’ War (1756-1763) and the American War of Independence (1775-1783) are clearly visible in the data. Warfare lured or forced sailors away from the merchant marine to enrol in

79 Starkey, ‘The market for seafarers’, 40-41; Earle, ‘English sailors’, 76-77; Lucassen and Unger, ‘Labour productivity’, 130. 80 Data for semi-processed timber imports were also available (see Appendix VIII), but, as has already been noted above, since fewer entries were available the comparison with the number of sailors could not be made as explicitly as with balks. The trend largely seems to be identical though.

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Relative prices, markets and consumers  |  191

the Navy as during wars the size of the Navy increased spectacularly.81 It also obstructed normal economic development as it made the investment climate uncertain and hindered transport. Many would have postponed investments in new ships until the war had ended. This connection is also reflected in Figure 6.14, where one can clearly see that during years of warfare imports of balks from the Baltic went through a trough. It can therefore be concluded that the increase in shipping tonnage during the second half of the eighteenth century was at least in part made possible by imports of Baltic timber. Population growth certainly also increased the demand for timber, but the large sudden changes in balk imports are reflected best by the number of sailors. The figures presented in this section suggest that there was a relationship between the increase in English shipping tonnage and the timber imports from the Baltic. Although a large domestic shipbuilding industry existed, it has also been shown that England imported a considerable part of its shipping tonnage from abroad; initially from Holland and later from New England. As transportation and transaction costs would have increased the price per ship, importing foreign vessels was probably only profitable for the larger vessels. Another way of reducing costs was to transfer the domestic shipbuilding industry to the north. Whichever option one might have chosen, it is clear that, where opportunities existed, English merchants used the competitive advantage of foreign regions in order to reduce their own costs of purchasing vessels.

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6.6 Resistance to sawmills Now that the evidence from the English construction and shipbuilding industries has been discussed, it is time to interpret the violence against sawmills in London. The historiography has devoted much attention to the introduction of and resistance to new technologies. Mokyr shows, for example, that there are usually people who gain and people who lose from the introduction of a new technology. Often the losers try to resist the introduction through non-market mechanisms and political activism. According to Mokyr these actors have several reasons for resistance: unemployment, decline in wages, capital losses, loss of human capital, non-pecuniary losses (changes in firm size, entry conditions to the industry, characteristics of the workplace, and effects on the regional distribution of production and employment) and effects on common resources. Compensating losers or not introducing the superior

81 Starkey, ‘The market for seafarers’, 40-41.

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192  |  The economic consequences of the Dutch

technology at all are among the possible outcomes of such resistance.82 Randall’s review article shows that the timing of the introduction of a new technology was crucial.83 If established as a totally new industry, no existing power balance was disrupted and resistance was generally lacking as new opportunities and extra jobs were created. In those regions where it was difficult for labourers to adopt new technologies within existing methods of production, resistance was more likely to occur as they could lose their jobs. Methods of resisting the new technology included anti-machinery riots, machine breaking, appealing to the authorities and covert threats and sanctions. The latter included putting pressure on fellow labourers not to work with the machine and on entrepreneurs not to use it. So what exactly happened in London in May 1768? The mill in question was the first steam-powered sawmill to be erected in London (at Limehouse) and was owned by one Charles Dingley. Although the mill had already been in use for about fourteen months, the main grievance of the rioters was that new machinery had recently been installed while ‘thousands of them were starving for want of bread’. In a letter of Friday 6 May the sawyers tried to put pressure on Dingley by informing him of their intentions. On Tuesday 10 May, the rioters carried out their threat and took down the mill. The case was eventually brought before the courts and one of the rioters, John Smith, was sentenced to seven years imprisonment.84 It is important to be aware of the fact that hostility towards sawmills was not restricted to England alone; it could also be found in the Netherlands. The evidence shows the complexity of the contexts in which violence did or did not occur. The Zaan region is a good example of a non-violent introduction of the sawmill. Located in the countryside close to Amsterdam, there were no existing local groups with vested interests. The new industry led to a boost of the Zaan economy. Elsewhere in Holland the situation was not as straightforward. In 1610 the magistrates of Enkhuizen refused the building of a sawmill, as there were many poor who sawed timber for a living. When sawmills were allowed in the town, namely in 1619 and 1623, it was one at a time. In addition these mills were only allowed to saw fir. Only from 1643-1644 was formal permission granted to saw oak on sawmills. The Amsterdam town council followed a similar policy. In 1620 the hand-sawyers agreed with two Zaan sawmillers, who had established a sawmill just outside Amsterdam, that their mill would only saw fir. Oak was to remain the exclusive domain of

82 Mokyr, ‘Innovation and its enemies’. 83 Randall, ‘Reinterpreting “Luddism”’. 84 Rudé, Paris and London, 237, 239, 249-250; Appleby, ‘Public spirit at a premium’; Appleby, ‘Limehouse sawmill’; Randall, ‘Reinterpreting “Luddism”’, 60-61; The Proceedings of the Old Bailey, July 1768, trial of Edward Castle.

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Relative prices, markets and consumers  |  193

the hand-sawyers. The agreement was made after the intervention of the local government. Just one year later even the import of oak balks, planks and wainscot was forbidden. Oak had to be sawn by hand-sawyers, as they would lose their income if sawmills took over their work. The situation of high wages in Amsterdam and the use of sawmills outside it eventually became untenable, however, and during the late 1620s the Amsterdam hand-sawyers guild was liquidated.85 These examples show that the introduction of mills processing fir was not contested, but that the hand-sawyers managed to delay the introduction of oak-processing mills for some time. In the end their attempts were unsuccessful, but this did not lead to large acts of violence. This can be explained by the fact that the Dutch economy witnessed tremendous growth. Sawyers that lost their jobs could easily find work in the new sawmills or in other parts of the economy. By the time the tide had started to shift in the Dutch economy during the second half of the seventeenth century, hand-sawyers guilds had disappeared as agents for hand-sawyers and labourers had become accustomed to sawmills being part of society. The evidence shows that even when the relative price of labour and capital allowed for the introduction of sawmills, labourers could develop means to delay the use of the new machinery during its initial phase. Dutch labour thus often successfully mobilised the government in order to (partly) delay the introduction of the new machine. English labour seems to have behaved in a similar fashion although with an alternative strategy: violence directed towards the machine and entrepreneurs. This strategy was certainly not restricted to the timber industry alone and is most clearly visible in the textile industry and in agriculture.86 To this can be added that within London, sawyers lived in concentrated pockets of the city, so a hostile environment could easily be created.87 The fact that the 1768 case provides the first evidence on the use of sawmills in eighteenth-century England suggests that using such machinery only became profitable in London around the 1760s. Furthermore, the comparison with Dutch sawmilling and some other sectors of the English economy suggests that the observed violence was part of a much broader process of developing strategies used to resist new technology during its early phases.88

85 Hart, ‘Geschiedenis van de houthandel’, 73-74; Aten, Politiek en economie, 252 (also note 229), 253 (also note 235); Kingma, ‘De betekenis’, 133. 86 Randall, ‘Reinterpreting “Luddism”’. 87 Personal communication with Dr. Leigh Shaw-Taylor (University of Cambridge). 88 Randall, ‘Reinterpreting “Luddism”’, 70-73, also argues that only during the late eighteenth century were paternalistic policies – often directed towards supporting labour – abandoned while the English government was becoming more liberal. Increasingly property was protected instead of labour.

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194  |  The economic consequences of the Dutch

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6.7 Conclusion Timber was a vital input for the early modern economies of England and Holland as it was used for building houses and ships. As both countries were characterised by high wage levels both had an incentive to economise on labour input. Surprisingly, the sawmill was used intensively in Holland from the end of the sixteenth century onwards whereas England waited till about 1800 before introducing it. This chapter has examined why both economies adopted these different strategies. It was found that the existing explanations could not fully explain the differences and it was suggested that the relative price of labour and capital and the cost of the capital goods played an important role. In section 6.3 it was shown how sawyers’ wages increased relative to the wages of building labourers during the sixteenth century. By slightly reorganising Paul David’s model and using historical data as input, it could be shown that by the late sixteenth century the rate of return had reached c. 70%, which implied a risk premium high enough for entrepreneurs to start looking for alternative processing technologies. As the necessary knowledge was subsequently acquired and made readily available after the initial patents had expired, there was a sharp increase in the number of Dutch sawmills. It was argued that a similar line of reasoning also covers the rise of the sawmilling industry in Frisia and the shift to mechanisation in England. Relative factor prices, the price of the capital goods and the rate of depreciation resulted in rates of return at the time of introduction that were somewhat higher than in Holland. This was explained by the fact that elsewhere entrepreneurs were less familiar with the technology and thus demanded a higher return for the risks they ran when investing. But in all these regions the underlying average costs of production seem to have formed the key to understanding the investment behaviour of entrepreneurs. The evidence that was collected on English trade and shipbuilding has shown that domestic and international markets were well-integrated and efficient, so it was possible for English merchants and entrepreneurs to assess local and foreign wages and interest rates and make use of the relative prices elsewhere if that was profitable. In doing so, economic performance was optimised. English merchants consequently did not import large amounts of unprocessed timber, but imported disproportionally large amounts of sawn timber products from the Baltic. English merchants also improved their relative position on the Norwegian market for sawn timber. In Norway and the Baltic labour was much cheaper, which gave these regions a relative advantage in labour-intensive timber processing. Luxury timber such as wainscot, which could be produced at sawmills much more cheaply than by hand, was imported from Holland. Producing wainscot in sawmills was a capital-inten-

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Relative prices, markets and consumers  |  195

sive activity that could be performed best where capital was relatively cheap. In shipping, where international competition had to be taken into account, the English also reacted as expected. The domestic shipbuilding industry was gradually transferred to the northern parts of the country where wages were lower. Some of those types of ships – probably the larger types – that could profitably be imported from abroad because foreign labour was more productive, were imported from Holland and the American colonies. The development of the Dutch economy thus had an important impact on England. Ultimately lots of timber – both processed and unprocessed – still had to be refined in England for final use in shipbuilding and construction, but until at least the 1760s it was not attractive to establish sawmills outside London. From the mid-eighteenth century onwards, however, the demand for timber increased, as did timber imports and the pressure on the timber-processing industry; especially since the import of unprocessed timber from the Baltic increased sharply. The Limehouse sawmill was probably established in London to take away some of this pressure from the timber-refining industry. It has been shown that the resistance that this invoked was typical for the initial phase of a new technology: much the same – but without the outright violence – had happened in the Netherlands during the first half of the seventeenth century. This means that reality was somewhat more complex – at least initially – than the concept of induced technical change suggested. In the end, however, resistance proved futile. Due to the Napoleonic Wars, which threatened to hinder trade with the Continent, the English tried to escape from their dependence on European timber supplies. North America proved to be a valuable supplier and the raising of a tariff wall acted both as a boost for American imports and as a barrier to imports from Europe. As demand was much larger than the refining capacity, a large share of the American timber was exported in unprocessed form. This large influx of unprocessed American timber in England must have exerted an upward pressure on the wage level of sawyers. By doing so, it increased the relative price of labour, which subsequently further facilitated the establishment of a sawmilling industry in England itself. These mills were not powered by water or wind, but by steam.89

89 Cooney, ‘Britain’s missing sawmills’, 40-42; Cooney, ‘A return visit’, 83. See Ahvenainen, ‘Finnish sawn timber’, 157, for the tariffs during the period 1787-1821 and Potter, ‘British timber duties’, for an evaluation of the duties during the nineteenth century and their removal during the 1860s.

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7   | Relative prices, markets and producers

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7.1 Introduction The water driven sawmill was probably introduced into Norway during the late fifteenth century. Previously all timber had been processed by hand and the introduction meant an enormous increase in the productivity and efficiency of the timber processing industry. It has been estimated that productivity increased about three times and, by reducing the amount of waste timber, the sawmill could saw three to four times as many deals out of an identical log. Meanwhile, at the other end of the North Sea, Dutch labourers continued to saw timber by hand until the end of the sixteenth century. During the last years of that century however, the wind-powered sawmill appeared on the scene. In contrast to the Norwegian mill, where the saw frame was only equipped with a single coarse blade, the Dutch mills – the Norwegians called them silkesag or silk saws – were fitted out with up to three saw frames each containing multiple fine blades. The Dutch saw blades were thinner and their teeth were finer than those on the Norwegian saws. Together, these important differences led to higher productivity at sawmills of the Dutch type. In 1849 the Norwegian Forests Commission put the sawing capacity of the silkesag at 50% higher than the single-bladed saws, but other estimates give an even higher capacity. Aside from this, the amount of waste (i.e. sawdust)



Sandmo, Skogbrukshistorie, 87-88; Tveite, ‘Skogbrukhistorie’, 23.

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Relative prices, markets and producers  |  197

was reduced as the saw blade gave a smaller cut and the timber was also sawn with a smoother finish when sawn on a Dutch mill. As Norway and Holland were close trading partners, it might be expected that the Norwegians quickly copied the superior Dutch technology. After all, a century earlier they had been receptive to the introduction of the water-powered sawmill. This assumption could not have been further from the truth! A complaint to the Danish King shows that the Norwegians were already aware of the existence of the silkesag in the Netherlands in 1661. But although the Dutch technique was put into practice in the Baltic during the second half of the seventeenth century, as discussed in the previous chapter, the Norwegians only hesitantly adopted it from 1714 onwards. In that year, Christiania merchant Gerhard Treschow put forward a request to the government to grant him the privileged use of the multi-bladed sawmill in Norway. His request was declined because the government believed this new sawmill to be advantageous for the whole sawmilling sector as it required fewer logs to produce the same amount of deals. According to Treschow himself 156 logs were now required instead of 216 in order to produce 1,000 deals. Although the privileged use was thus denied, the silkesag did not make a triumphant march through Norway. Some silkesag mills were erected during the eighteenth century, but it was not until the nineteenth century that the silkesag was used on a large scale. For example as late as 1816 the 241 sawmills in Christiania’s hinterland were equipped with only 281 saw blades. Only during the 1840s and 1850s was the principle finally adopted on a larger scale. This obviously begs the question why the Norwegians were so slow to adopt this technology that was so much more productive and delivered a quality product that was in high demand in Holland. Explaining why Norway did not adopt the advanced Dutch technology can help to clarify whether perhaps there were obstacles to the exchange of technology and why some regions were more successful than others in generating economic growth during the early modern period. This chapter will proceed as follows. Section 7.2 will present an overview of the arguments that have been put forward to explain the deviant Norwegian development in adopting the Dutch sawmill. Section 7.3 will sub-

 Tveite, ‘Skogbrukhistorie’, 44-45; Sejersted, ‘Aspects’, 151; Åström, ‘Technology and timber exports’, 8-9; Åström, From tar to timber, 45.  ‘Andragende fra Kjöbstædernes’, 34.  See Chapter 6 and section 7.2.  Schreiner, ‘Det nye sagbruk’, 120-122; Åström, ‘Technology and timber exports’, 11.  Schreiner, ‘Det nye sagbruk’, 122; Holmsen, Linderud, I, 103-104; Sandmo, Skogbrukshistorie, 127-128; Tveite, ‘Skogbrukhistorie’, 44-45; Sejersted, ‘Aspects’, 149.  Schreiner, ‘Et problem’, 9-11; Sejersted, ‘Aspects’, 149; Åström, ‘Technology and timber exports’, 11; Davids, ‘Transfer of windmill technology’.

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198  |  The economic consequences of the Dutch

sequently propose an alternative explanation and the relative prices of labour and capital and the cost of the capital goods will again be brought to the fore. Attention will be paid to geographical differences, changes through time and alternative investment opportunities. This section adds to Chapter 6 since this time, timber producers are included in the analysis. Section 7.4 will consequently compare the results of the Norwegian and Dutch processing techniques on the cost level and will explain how the former supplemented the latter. It will also explain why Dutch sawmills were established in the Baltic. Section 7.5 will summarize and conclude.

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7.2 The arguments Various arguments have been advanced in previous literature to explain why the silkesag was introduced relatively late in Norway. Just as in Chapter 6, this chapter will discern between four groups of arguments: technological, geographical, economic and social. This section will review the arguments briefly. To start with the first, it is unlikely that a lack of technological knowledge or abilities was responsible for the late introduction. The Norwegians already had considerable experience with water-powered mills and technology, and mills, manuals and skilled labourers could easily be obtained from the Netherlands. Although it has also been suggested that the Dutch sawmills broke down easily, this is difficult to verify. In the Baltic this does not seem to have been a problem and during the nineteenth century the Norwegians apparently found ways to cope with it, so in the end this was probably not that big a problem. The geographical arguments found in the literature concern energy supplies and the domestic timber stock. It has been argued that there was a lack of water power, both in velocity and duration.10 Although the energy supply could be manipulated by channelling water from the river to the sawmill, the location of the mill and the type of waterwheel that it used largely determined the power that could be generated and the length of time the saw could be employed. Although the water supply was important in determining the potential capacity of a sawmill, from a technological perspective it does not fully explain Norway’s deviant development as the silkesager was in fact powered

 See Chapter 6 and section 7.2.  Sandmo, Skogbrukshistorie, 127; Tveite, ‘Skogbrukhistorie’, 44-45. 10 Schreiner, ‘Det nye sagbruk’, 122; Sejersted, ‘Aspects’, 149-150.

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Relative prices, markets and producers  |  199

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by water during the nineteenth century.11 Access to good locations, however, could be problematic. Norwegian entrepreneur Mogens Lauritzøn and his son Erich Mogensen were the owners of the Lørenskog and Aker sawmill complexes near Christiania. Transportation costs to and from the former location were 1.3 skillings per deal whereas the combined costs of transporting logs to the mill and deals to Christiania were 2.4 skillings in case of the Aker mills. Locations that were suitable for sawmilling and also had good access to timber supplies were not easy to find.12 Instead of water supplies, Norwegian historian Sejersted gave the timber supply a large role in the non-adoption of the silkesag. He cites a nineteenthcentury sawmill owner who claimed that the silkesag required logs of even size. With a large variance in size the difference in production capacity between the single-bladed saw and the silkesag was no longer as large because saws had to be repositioned in the frame all the time. When one starts to exploit a forest, the larger trees are usually cut down first and dimensions subsequently become smaller and more even in size over time. Sejersted therefore argued that the silkesag was initially adopted in the Drammen area as its forests had been exploited more intensively than the Glomma region to the (north-)east of Christiania. Unfortunately, Sejersted did not pursue the implications of this finding further.13 The economical arguments refer to the amount of waste timber, the availability of skilled labour and regulations relating to the processing of timber. To start with the first, it has been argued that the efficiency of the silkesag was lower than that of the single-bladed saw because it wasted a lot of timber in thick outside slabs that could not be used for export. A nineteenth-century sawmill supervisor claimed that a single-bladed saw could get 600 deals extra out of 4,320 logs compared to a silkesag.14 During the early eighteenth cen-

11 Bødtker, Norsk fløtnings historie, 69-70; Holmsen, Linderud, I, 103; Sandmo, Skogbrukshistorie, 127; Tveite, ‘Skogbrukhistorie’, 44-45; Wiig, ‘Sagbruksprivilegiene oppheves’, 15; Koht-Norbye, Sagbruk i Eidsberg, 7; Aarholt, Fløyting og fløytarliv, 9. Although Lunden, Norges landbrukshistorie, 35-41, shows that the climate in Scandinavia fluctuated somewhat over time, the literature on the timber industry does not mention structural differences in water supply during the centuries under review here. 12 Based on Holmsen, Linderud, I, 108-115. 13 Sejersted, ‘Aspects’, 149-152. Åström, From tar to timber, 45, seems to interpret Sejersted’s argument differently. According to him Sejersted argued that the silkesag could be put into better practice with the old trees of the prime forests and that the single-bladed saw was more efficient for sawing the younger wood. This completely contradicts Sejersted’s varying size argument: it is exactly in the undisturbed prime forests that the size of trees varied to a large extent. If we follow Åström’s point, the Norwegians would have erected silkesager as soon as the Dutch had invented them and not 250 years later. Moreover, the Dutch still sawed the Norwegian timber on their own mills, regardless of whether it was from a prime forest or not. 14 Sejersted, ‘Aspects’, 151.

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200  |  The economic consequences of the Dutch

tury a log yielded an average of 6.83 deals (see section 7.4), which meant that the use of the silkesag would lead to a production of c. 2% fewer deals. The loss seems moderate, especially since the quality of the deals would be better and the waste was not entirely useless since it could still be sold as firewood. Perhaps the absence of skilled labour limited the Norwegians’ ability to introduce the Dutch sawmill. It is possible that better skills were required in the advanced Dutch mills than in the rudimentary Norwegian ones. Skilled labour was relatively expensive in Norway, so this could indeed have been a problem. However, there are examples of Dutch engineers instructing local labourers on the use of newly established mills. In the Baltic this seems to have worked well, so it is likely that such problems could also have been solved in Norway relatively easily.15 Various authors have also claimed that the Norwegian sawmill privilege was to blame. The privilege was introduced in 1688 and concerned the southeastern part of the country, where around 1,200 sawmills were in use at the time. According to their owners, these saws had a combined annual production of 6.4 million deals. The measure stipulated that 536 of these saws had to cease production and only the 664 remaining saws (5 million deals) were allowed to produce for export and their production was limited to 3.4 million deals. The King argued that he had introduced this measure in order to protect the Norwegian forests and to concentrate production and trade in the hands of fewer people so that better prices could be fetched on the market. It is more likely, though, that by reducing the number of exporting sawmills he created a situation in which he could more easily tax the timber sector. Only in 1795 was the quota cancelled.16 Did the privilege indeed have such an impact that it made entrepreneurs refrain from introducing new techniques? Sejersted has shown that nineteenth-century entrepreneurs were receptive to technical innovations, but by then there was no longer a production quota. The Treschow case of 1714 shows that even during the period of privileges at least some entrepreneurs tried to innovate. The government itself even refused him the privileged use of the saw as it was convinced of the opportunities it offered to other sawmill owners in the country. It also does not seem as if the quota system discouraged entrepreneurs from increasing their production. They clearly exported more sawn timber than they were allowed to produce. It has been claimed that in fact they produced as much as the market could absorb. During the years 1720-1722 Mogens Lauritzøn, for example, actually sawed 50% more than he was allowed by the privilege. The sawing rights could also be trans-

15 See Chapter 3. 16 Wiig, ‘Sagbruksprivilegiene av 1688’, 60-61, 64.

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Relative prices, markets and producers  |  201

ferred from one mill to the other.17 In practice sawmill owners could thus produce as much as they pleased and therefore it remains to be seen whether the privilege really was an obstacle to change.18 Last but not least, the social explanations must be reviewed. In one of his publications Sejersted referred to an article by Carlgren, who – according to the author – ‘seems to incline to the view that conservatism was to blame’.19 Carlgren was indeed struck by the fact that Treschow’s contemporaries did not follow his example, but he seems to blame this more on the inflexibility of the Norwegian sawmill privilege, which has just been discussed, than on conservatism.20 Although some of the explanations discussed above have been invalidated by comparisons to contemporary Holland and the Baltic, as well as to nineteenth-century Norway, others do carry some elements of truth in them. The existing literature, however, has so far not been able to link them together in a coherent explanatory framework. The following sections will therefore try to develop such a framework.

7.3 Relative prices and alternative strategies

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Just as in Chapter 6, Paul David’s framework of relative factor prices, cost of the capital goods and production size will be used here to explain the relatively late adoption of the silkesag in Norway. David’s model shows that each technique has its own characteristic cost curve. Since labour-saving techniques often require a significant initial investment, average production costs are usually higher than ordinary labour-intensive techniques when production is only small. Only when the production size becomes larger can the average production costs become lower. Changes in the relative prices of the production factors shift the cost curves vertically; in doing so the point at which labour-saving techniques become profitable changes. A decrease in the relative 17 Being able to transfer one’s quota to another sawmill meant that the production at relatively advantageous locations could steadily be increased at the cost of the less profitable locations. This way, problems with the energy supply could also be partially solved. 18 Holmsen, Linderud, I, 97-98; Kjærheim, ‘Norwegian timber exports’; Holmsen, Linderud, II-1, 102; Wiig, ‘Sagbruksprivilegiene av 1688’, 62; Bruland, ‘Growth trajectories’, 706. A privilege was also introduced in the Swedish part of Finland in 1739, but there it does not seem to have hindered the introduction of the Dutch sawmill. The production quota was based on local forest resources and ranged between 3,600 and 36,000 deals. The production capacity, however, probably ranged between 12,000 and 120,000 deals. Finnish historian Kuisma assumes real production to have been in between the official quota and the maximum production capacity. Kuisma, ‘Privilegiegiving’, 144, 162, and personal communication with professor Kuisma. 19 Sejersted, ‘Aspects’, 149-150. 20 Sejersted, ‘Aspects’, 150 note 12; Carlgren, ‘Review’, 211.

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202  |  The economic consequences of the Dutch

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price of labour favours the use of labour-intensive technology, whereas an increase in the relative price of labour will eventually make entrepreneurs economise on labour input. This means that they will increase the amount of capital in the production process by introducing labour-saving techniques. Obviously similar results can be obtained through changes in the costs of the capital goods that are used. In Chapter 6 it has been shown that relative factor prices favoured manual processing in England whereas it allowed for mechanical processing in the Netherlands. We have to realise, though, that a simple water-powered sawmill and a silkesag used different technologies from a wind-powered sawmill and that subsequently labour and capital costs would have been different. Given that a simple water-powered sawmill was much cheaper to build – as will be shown below – the cost curve for such a machine would probably have lain above and to the left of the curve for the wind-powered sawmill (see Figure 7.1). This also means that a different combination of wage levels, interest rates and production size made it profitable to shift from manual to mechanised processing. Unfortunately no data are available for Norway around 1500 to substantiate this point. We can, however, use some early eighteenth-century data in order to document that at least at that time it made sense to process mechanically. The approach will be similar to the one used in Chapter 6. Following the estimate presented in section 7.1, it will be assumed that a simple water-powered sawmill was three times as productive as processing by hand. As De Vries and Van der Woude commented that in the Netherlands the number of working days in a year was relatively high compared with other regions, it will further be assumed that the working year of a Norwegian hand sawyer would have consisted of 280 days.21 Using this information we can reformulate the three equations that have already been used in Chapter 6.

(1)

Mill = (interest rate x purchase price) + (rate of depreciation x purchase price) + annual labour costs

(2) Sawyers = 3 x 280 x day wage (3) Interest rate = [(3 x 280 x day wage) – annual labour costs – (rate of depreciation x purchase price)] ÷ purchase price

21 De Vries and Van der Woude, The first modern economy, 616-617.

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Relative prices, markets and producers  |  203

Figure 7.1

average production costs

Cost 7.1 curves for four technologies

PH

PWA PS PWI QH

QWA

hand

QS

water

silkesag

QWI production size

wind

Source: Based on David, ‘The mechanization of reaping’, 20. Note: Quite similarly, a cost curve for a steam-powered sawmill could be included to the right of a wind-powered sawmill. 7.4

price per foot

In order 0.75 to find an outcome, information on the remaining four variables needs to be collected. To start with the annual labour costs at a simple wa0.65 ter-powered sawmill, it should be taken into account that these – just as their 0.55 wind-powered counterparts in the Netherlands – could only be used when0.45 there was sufficient power (i.e. water) to propel them. In contrast to the Netherlands – where, in principle, the wind was present throughout the year 0.35 – the amount of water depended heavily on precipitation (either rain or snow). 0.25 This meant that in Norway the use of the mill was concentrated 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 in two-thirds of the year. During the remaining third, workers had to look length of the deals for work elsewhere (e.g. on their farms). A mill was usually manned by two workers, who earned 1 ort or ¼ rigsdaler each. This1796 wage level1711 wasZaan not much 1730 Ams 1732 Rdm 1742 Rdm Ams different from the wages paid to labourers in the Baaseland blast furnaces,

7.5 0.5 0.4 costs per saw cut

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0.85

0.3 0.2

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0.1

204  |  The economic consequences of the Dutch

which were presented in Chapter 3.22 This combined information suggests that the wage bill of the sawmill amounted to (2\3 x 280 x 2) = 373 day wages. Making use of a sawmill thus meant that (840 – 373) = 467 day wages could be dispensed with.23 It has been estimated that during the early eighteenth century a new sawmill cost approximately 150 rigsdalers and had a rate of depreciation of fifteen years.24 Now that all the necessary information has been collected, the rate of return can be fixed at [(467 x ¼) – 10] ÷ 150 = 0.71 or 71%. It indeed made economic sense for entrepreneurs to make use of mechanical processing by this time. In the absence of information it can only be supposed that similar considerations also played a role some two centuries earlier.25

Table 7.1

Hypothetical rates of return of a silkesag

Day wage ¼ Rd. ⁄ ¹ ³ Rd. ½ Rd.

Cost of capital goods 150 Rd. 300 Rd. 600 Rd. 141% 67% 30% 190% 92% 43% 289% 141% 67%

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Source: See text.

Unfortunately – since the present author could not locate the required data – it is not possible to make a similar calculation for the introduction of the silkesag. We can be pretty sure, however, that the purchasing price of this new type of sawmill would have been higher than that of the mill that had already been in use. Exploiting the fact that the Norwegian Forests Commission thought the silkesag to have been 50% more productive than an ordinary sawmill, we can still try to gain an understanding of the investment behaviour of

22 Although the data collected by Koninklijk Nederlands Meteorologisch Instituut, Daggegevens, does show that average wind speeds were higher during winter than during summer, there were probably enough days with sufficient wind during summer to continue running the mill. For the information relating to the Norwegian sawmills, see Holmsen, Linderud, I, 110-113. 23 Due to a lack of wage data it must be assumed – just as David did – that hand sawyers and workers at sawmills earned identical wages. Had hand sawyers earned 50% higher wages than workers at a sawmill, for example, the calculation below would have given an outcome of [(3 x 280 x 1½ x day wage) – (373 x day wage) – 10] ÷ 150 = 1.41 or 141%. 24 Holmsen, Linderud, I, 112. 25 For similar reasons we must also assume that the same holds true for the Scottish waterpowered sawmills along the River Spey that were used from at least the 1720s onwards.

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Relative prices, markets and producers  |  205

the Norwegian entrepreneurs. This higher productivity implied that a silkesag could produce as much as 1½ x 3 x 280 = 1,260 hand sawyers. If we would assume labour inputs to have been the same as at an ordinary mill, the capital costs would have to equal (1,260 – 373) = 887 day wages in order to reach the break-even point. Keeping the rate of depreciation constant at fifteen years, Table 7.1 calculates some possible rates of return. Table 7.1 shows that only the combination of a cheap silkesag and a substantial increase of wage levels would yield rates of return – relative to manual processing that is – higher than the 71% calculated above for a simple sawmill. The data presented in Chapter 3 suggest that wages did not change by these factors and it is of course unreasonable to assume that a silkesag would have cost the same as an ordinary mill. It must therefore be concluded that during the eighteenth century the combination of relative prices and the cost of the capital goods did not allow for the introduction of the more advanced silkesag in Norway. In other words, the time was not yet ripe to upgrade to machinery that saved more on labour than the existing simple sawmills already did.

Figure 7.2

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Map of Norway with some of the locations mentioned in this chapter

As a result Norwegian and Dutch entrepreneurs chose to use different amounts of capital per worker. As is shown in more detail in Appendix IX, an eighteenth century sawmill probably cost between 6,500 and 9,000 guilders in Holland. Here 8,000 guilders will be used as it falls almost exactly in the middle of these values. As five workers manned such a mill, 1,600 guilders worth of capital was employed per worker. The Norwegian evidence on the

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

206  |  The economic consequences of the Dutch

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other hand suggests that a new mill cost about 150 rigsdalers. Given the fact that two labourers were needed to man such a mill, only capital to the value of 165 guilders was available per worker. In other words, Dutch entrepreneurs used about ten times as much capital per worker as their Norwegian colleagues.26 This clearly shows that Dutch entrepreneurs must have had access to relatively cheap capital and that capital must have been relatively expensive in Norway. Contemporary evidence indicates that Norwegians did indeed deem the silkesag expensive.27 Obviously the prices of labour and capital were not static forever but could change as time progressed. Just as happened in Holland and England, relative prices shifted in Norway; especially from the late eighteenth century onwards. Whereas wages increased considerably, capital seems to have become somewhat cheaper.28 Eventually this combined process – as Table 7.1 has already suggested – enabled the use of more advanced techniques such as the silkesag. The Norwegian case shows, however, that the adoption of the silkesag was not a uniform process. During the 1850s, 80% of the silkesager could be found between Kristiansand and Drammen, whereas 80% of the single-bladed saws were located on the other side of the Oslo fjord (see Figure 7.2).29 Sejersted tried to explain the difference by pointing to a variance in timber size. The problem with a high variance in timber size and multiple saw blades is that the sawmiller has to adjust the position of the blades with every log.30 In Holland, where the mill powered three frames at the same time, this meant that work on all three frames had to be brought to a halt. Thus there was a good reason to work with supplies of even-sized timber. In the Netherlands this problem was solved through auctions where one purchased sorted lots of timber. The Zaan, Amsterdam and Dordrecht were the main locations where these auctions took place. Sorting, storing and auctioning timber involved space, transaction costs and time. This meant that auctioning cost an additional amount of money.31 High capital costs – as in Norway

26 Holmsen, Linderud, I, 112; Van der Woude, Het Noorderkwartier, 329; Appendix IX. Since systematic evidence on the Norwegian-Dutch exchange rates are lacking, the silver content of both currencies was used in order to convert rigsdalers (96 skillings of 0.22 grams) to guilders (9.61 grams). Evidence collected by Friis and Glamann, Prices and wages, 61-103, suggests that during the first fifteen years of the eighteenth century, in Copenhagen at least, the Dutch guilder exceeded its par value by about 9%. This means that 109 instead of 100 Danish rigsdalers had to be paid in order to obtain 100 Dutch rijksdaalders. This means that the amount of capital per worker could actually have been somewhat smaller. 27 Tveite, ‘Skogbrukhistorie’, 44. 28 Grytten, Historisk lønnsstatistikk. See Chapters 4 and 5. 29 Sejersted, ‘Overgangen til silkesager’, 51. 30 Sejersted, ‘Aspects’, 149-152; Sejersted, ‘Overgangen til silkesager’. 31 Schillemans, ‘De houtveilingen’; Middelhoven, ‘Amsterdamse veilingen’; Van Prooije, ‘De invoer van Rijns hout’, 49-51.

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Relative prices, markets and producers  |  207

– would have made this a relatively expensive solution to solving high variance problems. Using natural circumstances by introducing the technique in that part of the country where the variance in size had already been reduced through early felling (i.e. between Kristiansand and Drammen) was a cheap solution to the problem.

Table 7.2

Total costs of running 13 Norwegian sawmills at the beginning of the eighteenth century Rd. Logs Transportation Labour Storage Maintenance Tax Total

% 3,170 47.1% 2,362 35.1% 820 12.2% 126 1.9% 210 3.1% 40 0.6% 6,728 100.0%

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Source: Holmsen, Linderud, I, 115.

Although wages, interest rates and the cost of the capital goods thus delayed the introduction of the Dutch sawmill in Norway, this did not mean that Norwegian entrepreneurs operated in a static economic environment. Given the relative prices there still were various alternative strategies available to them. Table 7.2, for example, shows that domestic transportation seriously increased the total production costs of Norwegian entrepreneurs. Since during the seventeenth century most logs of proper dimension had been taken out of the easily accessible forests along Norway’s coast, timber traders had to obtain timber further inland. This required considerable amounts of money as the logs had to be floated over relatively long distances to the sawmills. After processing the timber also needed to be shipped to ports. The high costs associated with the additional transportation to the mills meant that the timber industry was increasingly concentrated in the hands of a few wealthy merchants who were involved in both transportation and sawing.32 Given the high costs of transportation it is easy to understand that improving domestic infrastructure was an interesting investment opportunity for Norwegian entrepreneurs, particularly since they did not face foreign (i.e.

32 See Table 7.3.

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208  |  The economic consequences of the Dutch

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Dutch) competition and because such improvements would only require a single investment (e.g. the removal of rocks or canalization of a particular section of a river). This explains why we witness sizeable investments in improving Norway’s waterways during the eighteenth and nineteenth centuries. Only when the Norwegians had dealt with their transportation constraints and capital had become relatively cheaper, did improving processing technologies become feasible.33 Besides investments in infrastructure the Norwegians also found some other ways to lower average production costs. The present study has been able to identify three such strategies. Firstly, sawmills were increasingly equipped with fine blades like the Dutch had. Initially saw blades were approximately ten millimetres thick, but during the second half of the seventeenth century this was reduced to six to seven millimetres. This meant that, as the cut was smaller, less sawdust was produced and less power was needed to drive the blade through the log. The more advanced saw blades had to be imported; often they came from Holland.34 From c.1740 onwards the government frequently only gave new privileges when one installed such a blade.35 Secondly, data for Christiania suggest that at least some of the mills were equipped with two or more blades. In 1816, 281 blades could be found in Christiania’s 241 sawmills.36 This means that a maximum of 40 mills could have been equipped with two blades. Information on the price of saw blades in Holland – they cost a few guilders each – suggests that the costs of adding one extra blade could be dealt with. Equipping the frame with more blades might have required remodelling of the entire mill, which would have involved more substantial sums. Since adding a second blade increased relative production the most, adding just one blade would have been the middle way between investment size and production increase.37 Thirdly, in Christiania’s hinterland at least, production was increasingly concentrated in the hands of a few large merchants. Table 7.3 gives an

33 Bødtker, Norsk fløtnings historie; Frydenlund, ‘Næringsutvikling’, 99-100. 34 Holmsen, Linderud, I, 103; Sandmo, Skogbrukshistorie, 86; Tveite, ‘Skogbrukhistorie’, 45; Koht-Norbye, Sagbruk i Eidsberg, 7; Bull, Trondhjemske handelshusene, 65. 35 Sejersted, ‘Aspects’, 150 note 14; Fryjordet, Generalforstamtet, 18-19, 66-67. 36 Schreiner, ‘Det nye sagbruk’, 122. 37 The only available prices of sawblades are for second-hand ones and they ranged in price between one and three guilders. Note that the available prices were corrected for inflation and are expressed as the equivalent value in the guilders of 1700. New blades cannot have been much more expensive. Evidence based on sales from the De Dickert and De Beer (1697); De Ooievaar (1699); De Herder, De Witte Dolfijn, De Hovenier, De Witte Bijl and De Zonnewijzer (1704). See Couwenhoven, Database duizend Zaanse Molens. Personal communication with Couwenhoven. Holmsen, Linderud, I, 111, states that a new sawblade in Norway cost 5 rigsdalers during the eighteenth century. This was a blade produced by a Norwegian blacksmith.

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Relative prices, markets and producers  |  209

overview of the production allowed to the largest merchants in that region. It clearly shows that the overall production of the five largest producers increased considerably during the eighteenth century. The combined share of the largest owners in Christiania’s production also increased. David’s model suggests that increasing the scale of production was one of the ways to reduce average production costs and could eventually be helpful in making the adoption of a more advanced technology possible. The evidence provided in this section shows that the relative price of labour and capital and the cost of the capital goods did not allow the introduction of more capital-intensive processing technologies in Norway. The use of alternative investment opportunities clearly shows that Norwegian entrepreneurs were aware of this. Instead of implementing a processing technique that did not suit the large domestic supply of cheap labour, they chose to invest in infrastructure and some less expensive technical improvements and concentrate production in the hands of a small entrepreneurial elite. Only when capital had become cheaper did they adopt the silkesag on a larger scale, but initially only in those regions where the variance in timber size was smallest.

Table 7.3

Timber production of the largest Christiania entrepreneurs

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Year 1687 1689 1705 1740 1751 1760

1-5 362,000 244,470 415,920 563,550 750,000 1,184,000

Total Increase 6-10 Christiania 1-5 6-10 176,000 1,250,000 156,960 840,000 -117,530 -19,040 258,840 1,200,000 171,450 101,880 285,700 c. 1,550,000 147,630 26,860 313,000 186,450 27,300 329,000 434,000 16,000

Market share 1-5 6-10 29.0% 14.1% 29.1% 18.7% 34.7% 21.6% 36.4% 18.4%

Sources: Holmsen, Linderud, I, 55-56, 63, 68, 80-81, 302; Holmsen, Linderud, II-1, 114. Note: Holmsen did not give a total production figure for 1740, but only mentioned the market share of one of the top ten producers. This share was subsequently used to estimate total production. The 1687 figures are the production figures declared by the entrepreneurs themselves, those for 1689, 1705, 1740 and 1760 are based on the maximum production allowed by the privilege and the figures for 1751 have been based on the timber tithes.

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210  |  The economic consequences of the Dutch

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7.4 Interaction between the Dutch and Norwegian sawmilling industries In Chapter 6 and section 7.3 of the present chapter we have seen that domestic relative prices and the cost of the sawmill determined the processing techniques that were used in the timber industries of the Netherlands, England, Scotland and Norway. This section will take a look at the actual costs of using these technologies. It will be shown how Norway, despite the fact that it only used a simple technique, made an important contribution to the international economy. This will be done by providing detailed evidence on average processing costs for Norwegian and Dutch sawmills. Norway’s export consisted mainly of sawn dimensions, the so-called deals. Dutch and Norwegian sources for the period 1625-1724 indicate that these measured between 10 and 12 feet.38 As Norwegian saws were equipped with only a single blade, deals were sawn out of a log by making one cut at a time. Norwegian data on the costs of this procedure are available for the first decades of the eighteenth century. In order to make a comparison with Holland, comparable data for Dutch sawmills are required. It would be preferable to be able to use the same type and length of timber. Fortunately such data are available in the form of processing piece rates charged by sawmillers in Amsterdam, Rotterdam and the Zaan who worked on commission for others. They sawed (Norwegian) deals into two or three parts, but it is not clear which was more common. For the present purpose this is not a very big problem as sawing a deal into three was exactly twice as expensive as sawing it into two. Note that the Dutch and Norwegians thus produced two different types of goods. The Norwegians made deals out of logs, however, in Dutch terminology these were called unsawn deals. Once they had processed the Norwegian deals themselves, they called them sawn deals.39 As prices for sawing deals were specified per cut and because rates for two cuts were exactly twice as high as for one cut, Schreiner falsely assumed that Dutch saw frames were only equipped with a single blade when sawing Norwegian deals.40 Nineteenth and twentieth-century photographs show, however, that Dutch sawmillers were able to use more than one blade when

38 Tveite, Trelasthandel, 65-104; Schreiner, ‘Et problem’, 6-8. For Norway’s timber trade (with the Netherlands) also see Vogt, ‘Norges udførsel af trælast’; Bugge, Norske trælasthandels historie; Schreiner, Nederland og Norge; Schreiner, ‘Die Niederländer’; Sønstevold, ‘Nederlandske norgesfart’; Bruijn, ‘The timber trade’; Ufkes, ‘Houttransport’; and Willemsen, ‘Dutch sea trade with Norway’. Studies that look at the local Norwegian level include Lillehammer, ‘Scottish-Norwegian timber trade’; Langhelle, ‘Trelastutførsla’; Langhelle, ‘The impact’; and Eliassen, ‘Port towns’. 39 Schreiner, ‘Et problem’, 9-10. 40 Schreiner, ‘Et problem’, 9-11; Schreiner, ‘Fremmede marknader’, 162.

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Relative prices, markets and producers  |  211

sawing semi-processed timber. As little had changed in Dutch sawmilling practice between the seventeenth and nineteenth centuries, it is probable that this technique was also in use during the seventeenth and eighteenth centuries. The Dutch advantage of being able to use multiple blades in the frame at once was thus not lost as Schreiner had thought. Together with the fact that both the Dutch and the Norwegians tried to get the most out of their respective sawing seasons – both worked overtime when wind and water power were abundant – their efforts and capabilities were rightly reflected in the price per saw cut.41

Figure 7.3

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Processing various pieces of timber using multiple blades

Source: Detail of a photograph taken by Photo Van der Stok (Leiden) around 1917 of the sawmill De Eendracht in Leiden, The Netherlands (Collection Stichting Houtzaagmolen De Heesterboom).

One of the best-known examples of working on commission, as well as the oldest one, is the Amsterdam Sawmill Company that was established in 1630. In 1631 one had to pay 5 (4.87) guilders and in 1632 6 (7.05) guilders in 41 Holmsen, Linderud, I, 110; Van Kampen, Rotterdamse particuliere scheepsbouw, 171 note 1; Gawronski, De Equipagie, 85-86.

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average produ

212  |  The economic consequences of the Dutch

PH

order to have a great hundred deals sawn at one of their mills.42 Later on, the sawmillers’ guild also regulated piece rates, but evidence is only available for P1796. Just as in Amsterdam, the Rotterdam sawmillers’ guild also regulated Ppiece rates. Here data are available for 1732 and 1742. In addition to rates Pstipulated by the guilds, private contracts have also survived for the Zaan re43 gion (1711) Q and Amsterdam Q (1730). Q Q production size WA

S

WI

H

WA

S

hand

WI

silkesag

water

wind

Figure 7.4

Piece rates for sawing a great hundred deals of different lengths in Amsterdam, Rotterdam and Zaan region (in 1700 guilders per foot)

7.4

0.85

price per foot

0.75 0.65 0.55 0.45 0.35 0.25

8

9

10

11

12

13

14

15

16

17

18

19

20 21

22

23

24

length of the deals 1730 Ams

1732 Rdm

1742 Rdm

1796 Ams

1711 Zaan

Source: ‘Ordonnantie op het hout-koopers gilde’; ‘Ampliatie en alteratie’; Amsterdam municipal archive, Notarial archive (5075), inv. no. 9331, act 5230; Amsterdam municipal archive, Nieuw 7.5stedelijk bestuur (5053), inv. no. 69, piece no. 587; Archive of northern Holland, Notarial archive

0.5

The0.4 evidence, part of which is presented in Figure 7.4, shows a number of things. Firstly, Amsterdam saw rates seem to have decreased somewhat becosts per saw cut

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Oost-Zaandam, inv. no. 5819, act 76.

0.3

0.2 Dillen (Bronnen) published many documents related to this Company. The piece rates 42 Van can be found in Van Dillen, Bronnen, II, documents 1371 and 1472. The prices without brackets are current prices whereas prices between brackets are corrected for inflation and 0.1 are expressed as the equivalent value in the guilders of 1700. The great hundred consisted of 120 (or sometimes slightly more) deals. When the number of deals was higher than 120, prices 0.0 were converted to a per 120 deals level. 0 1 3 balks in the 4 vicinity of Alkmaar 5 43 See Figure 7.3 for sources. Some2rates for sawing (1633-6 1634) are available in Van Zwet, ‘Binnenkruier’, 178-179. thickness of plank (thumbs)

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Relative prices, markets and producers  |  213

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tween the 1630s and the eighteenth century. It is likely that the Company, as a monopoly holder, took advantage of its position and set the rates too high. It is also likely, however, that prices went down due to the fact that productivity improved over time as workers grew more familiar with the new machinery and that a growth in the number of sawmills – in the Zaan but also in Amsterdam – increased competition. Secondly, the sources seem to show a flattened U-shaped pattern of piece rates. The optimum price per foot seems to have been realised between 10 and 14 feet; the common size of Norwegian deals. The rates increased when less usual dimensions – smaller or larger – had to be sawn. Thirdly, the spread of piece rates is as could be expected. Urban rates closely matched geographically and chronologically. Zaan sawmillers were also 15 to 25% cheaper than their colleagues in towns.44 Sawing a great hundred would cost 4.06 guilders. The strong competition along the Zaan – an economy of scale as the majority of Holland’s sawmills were located there – combined with the absence of guilds and the lower wages in the countryside were likely to have made sawing cheaper than in towns.45 The 1730 rates agreed upon between a sawmiller and two merchants were probably higher than the rates established by the guild because the miller agreed to work exclusively for the two merchants.46

44 On 1 June 1711 18 sawmillers from the eastern and western parts of the town of Zaandam entered into a contract with each other in order to set the prices they would charge for sawing the timber of their customers. Their purpose was to raise the current rate because they considered it insufficient to make a reasonable profit. As these sawmillers were trying to improve their own position, real rates would probably have been somewhat lower. It remains to be seen to what extent they could actually have influenced the going rates. In 1711 there were already 144 sawmills in the eastern and western parts of Zaandam and the entire Zaan region had 189. Unless our sawmillers were running more than one sawmill each, which seems to have been unlikely during most of the eighteenth century, their share could have been 12.5% at most. Hart, ‘De Zaanstreek’, 22-24, discusses government inquiries of 1731 and 1806 that indicated that ownership of multiple (parts of) sawmills in OostZaandam was quite uncommon. In 1731 only two persons owned two (parts in) sawmills whereas in 1806, this was one person with two mills, two persons with three mills and one with four sawmills. Concentration of ownership does seem to have been especially high in the oil mill sector. Patterns were identical in West-Zaandam and the Zaan region as a whole. Whether or not this was the reason, the contract had already been cancelled days later. Even so, the rates that are stipulated in it are useful for the present purpose. 45 Van Kampen, Rotterdamse particuliere scheepsbouw, 112-113, shows that the summer wage of a carpenter working on a ship was 30 stuivers in Rotterdam whereas it was 26 stuivers in the Zaan region. The winter wages were 20 and 16 stuivers respectively. Hart, ‘Geschiedenis van de houthandel’, 75, mentions a complaint made to the Amsterdam town council in 1730 in which it was claimed that in the countryside a sawn deal cost 2 to 3 stuivers – or 12 to 18 guilders per great hundred – less to produce than in the city. Taking the price of a great hundred into account, this clearly must have been an exaggeration. 46 The sawmiller (Pieter Wesel) of this mill (De Schelvis) and the merchants (Hendrik Lammertijn and Gerrit Buijs) had agreed upon a three year contract. Lammertijn and Buijs were to make sure that there would always be enough timber to saw and Wesel agreed to charge them during this period according to the piece rates specified in their contract.

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214  |  The economic consequences of the Dutch

Now let us compare the data collected above to the Norwegian data. Norwegian historian Holmsen has reconstructed information on the average production costs in the mills of Mogens Lauritzøn and Erich Mogensen, who ran 13 sawmills in the vicinity of Christiania (see Table 7.2). Their company was among the largest Christiania merchant houses of the early eighteenth century and their business was therefore probably one of the most efficiently organized ones in Norway. Holmsen’s reconstruction includes all costs that this merchant house had in its timber activities. In order to make it comparable to the Dutch data, only those costs that were directly associated to the actual sawing of timber have been taken into consideration. This way we can estimate an equivalent to the piece rates for working in commission. Only labourers’ wages (820 Rd.), maintenance and depreciation (210 Rd.), sawing tax (Rd. 40) and profit (1,907 Rd.) were taken into account. As transportation also generated part of the profits, not all profits should be assigned to sawing. Below three variants are estimated, one that assigns all profits to sawing, one that attributes profits evenly over sawing and transportation in relation to the size of their respective costs and one that assigns all profit to transportation. In the early eighteenth century Lauritzøn and Mogensen annually produced 128,000 deals, which required 18,744 logs. The average log thus yielded 6.83 deals. In order to get rid of the two outer slabs an extra cut was necessary, so that producing 6.83 deals required 7.83 cuts to be made. Thus, in total 146,766 cuts had to be made. This total allows us to determine the costs of making a single saw cut.47 The data on the Norwegian and Dutch cases has been combined in Table 7.4.

Table 7.4

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Norwegian and Dutch production costs: the price of a saw cut

Profit share of sawing 0% 31.2% 100%

Norway Total Per cut Rd. 1,070 fl. 0.016 Rd. 1,665 fl. 0.025 Rd. 2,977 fl. 0.045

Total

Holland Per cut

fl. 4.06

fl. 0.034

Source: Holmsen, Linderud, I, 108-115; Figure 7.4. Note: The silver content of the skilling and guilder was put at 0.22 and 9.61 grams respectively.

47 Holmsen, Linderud, I, 108-115.

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Relative prices, markets and producers  |  215

It can be deduced from Table 7.4 that Norwegian saws could be operated more cheaply than their Dutch counterparts when the distribution of profits between sawmilling and transportation allotted 62% or less to the sawmill.48 It thus turns out that the simple labour-intensive mode of production was similar in cost or perhaps even cheaper than the complex capital-intensive one. This comparison, however, is somewhat uneven as the Norwegians processed logs whereas the Dutch processed deals. As the structure of demand was diverse and standardisation was only introduced during the nineteenth and twentieth centuries – for example the IKEA-concept in which identical products are sold all over the world was only introduced during the 1940s and 1950s – the last stages of processing necessarily had to be performed at the place of consumption (i.e. Holland).49 As Dutch sawmills were equipped with up to three saw frames that carried multiple saw blades, they had an enormous advantage vis-à-vis the Norwegians when sawing logs or balks. The question should thus be put more accurately: how did the costs of processing logs or balks in Holland relate to the combined costs of producing deals in Norway and processing them in Holland? The only sources that specifically state the number of cuts that are made are from the Amsterdam Sawmill Company. The 1632 source presents two series for sawing balks – under and over 18 thumbs in width – into planks of a certain thickness. As, on average, the Norwegians could cut 6.83 deals of 11 x 1½ inches out of a log and the saw blades would go up to 1 centimetre (0.39 inch) in thickness, the equivalent balk would measure 11 x 13.0 inch.50 This would fit the under-18 thumbs category, so these are the piece rates that we should take into account. The Dutch subsequently sawed the deals in half, so in the end there were 2 x 6.83 = 13.66 pieces that were on average thinner than one thumb. If the sides of the balk were smooth enough, this would have required 12.66 cuts, otherwise it would have needed 14.66 cuts. The closest price Figure 7.5 gives for sawing pieces of our thickness is 0.175 guilders per cut. This would bring total costs somewhere between 2.216 and 2.566 guilders. From the evidence presented earlier it is possible to reconstruct what the costs were if the first stage was performed in Norway and the second stage in

48 Given the fact that the guilder exceeded its par value in Copenhagen by 9% during the early eighteenth century, Norwegian piece rates might have been reduced to 0.015, 0.023 and 0.041 guilders respectively per cut. This means that 74% of the profits or less would have to have been allotted to sawmilling in order to make the Norwegians cheaper than the Dutch. See also note 25. 49 Cf. Chapter 6. 50 The thumb (2.61 centimetres) and inch (2.54 centimetres) are of about equal length, so it was chosen not to convert these measures here but instead use the values as they are given in the sources.

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aver PH216 

|  The economic consequences of the Dutch

PWAHolland.

In Norway the costs would have been (6.83 + 1) x 0.025 guilders (the share in profits option) = 0.195 guilders. The costs in Holland would P have been 6.83 x 0.034 = 0.231 guilders, which would bring the total to 0.426 guilders.QProcessing logsQin Holland was Qthus between 5.2 and times more Q 6.0 production size expensive than the solution in which the Norwegians and the Dutch shared hand water silkesag wind the task. We have to note, though, that the 1632 prices have not yet been converted to the 1700 price level. The 1632 Amsterdam prices were kept artificially high by the Sawmill Company and the eighteenth-century data indicate that as time progressed competition and productivity increased and prices decreased. 7.4 Whereas the price for having a great hundred deals sawn in 1632 was 7.05 guilders, this had decreased to less than 5 guilders in 1742 and 1796. Had the 0.85 same been true for balks, the costs for performing all stages in Holland would 0.75 have been 30% lower and would have ranged between 1.571 and 1.820 guilders or 3.7 0.65to 4.3 times more expensive. Discounting the fact that sawing deals in the Zaan region – where half of Holland’s sawmills were located – was 15 to 0.55 25% cheaper than in Amsterdam it is more likely that the Dutch were 2 to 3 0.45more expensive instead of 5.2-6.0 times. Moreover, the pieces were of times higher 0.35 quality because they were now entirely sawn by the silkesag and not in part on the coarse Norwegian blades. Given that the piece rates did not specify 0.25 a maximum 8 length, 9 10 the 11 Dutch 12 13 would 14 15have 16 had 17 an 18 advantage 19 20 21when 22 processing 23 24 logs that were 2 to 3 times longerlength thanofthe Norwegian deals, implying timber the deals of 6.3 to 11.3 metres. PS 31.2% WI

WA

S

WI

price per foot

H

1730 Ams

1732 Rdm

1742 Rdm

1796 Ams

1711 Zaan

Figure 7.5

Amsterdam 1632 piece rates for sawing balks under 18 thumbs width (in per cut)

7.5guilders

0.4 costs per saw cut

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0.5

0.3 0.2 0.1 0.0 0

1

2

3

4

5

6

thickness of plank (thumbs) Source: Van Dillen, Bronnen, II, document 1472.

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Relative prices, markets and producers  |  217

We now understand why the Dutch did not perform all their work on smaller dimensions themselves, but why they had such dimensions sawn partly in Norway. The capital-intensive Dutch way of processing had high initial costs and could therefore only compete when processing timber of longer dimensions. Had the capital costs been lower – through lower interest rates and / or cheaper sawmills – the Dutch would have been more competitive when sawing smaller dimensions. However, as it was, only longer dimensions could be sawn profitably in Holland. This thus makes it clear why the processing of smaller dimensions was divided between Dutch and Norwegian mills. International trade allowed for arbitrage between regions with different cost curves for processing timber and in this respect the integration of North Sea markets offered opportunities to the Norwegian economy. Different cost structures also clarify why Dutch merchants tried to import as many long dimensions as possible and keep the economic benefits of processing in Holland. This explains why, after the Thirty Year’s War had ended and trade could again take place, there was a surge in timber imports from the Rhine hinterland. It is also clear why the Dutch imported long dimensions from the Baltic. Relative prices and production apparatus in Holland were simply geared towards processing longer dimensions of timber.51 Using this explanatory framework, a complaint made in 1687 by the Dutch sawmillers themselves can be put in the right perspective.52 From the mid-seventeenth century onwards the eastern (Memel and Riga) and northern (Reval, Narva, Nyen and Viborg) parts of the Baltic had come to dominate the region’s timber trade.53 Apparently there were Dutch entrepreneurs transferring their sawmills to these areas in order to specifically process long types of timber. Many examples of their activities can be found in the historiography.54 It made sense for these Dutch entrepreneurs to transfer their businesses to the Baltic as they now had access to a favourable combination of cheap Dutch capital and Baltic supplies of large timber, something that was not possible in Norway. Mills, parts and labour could be imported from the Netherlands and once local workers had been instructed on how to use the mill, the Dutch entrepreneur could profit from wages that were much

51 Meinander, En krönika, 59; Schillemans, ‘De houtveilingen’, 214-215, 232; Ebeling, Der Holländerholzhandel, 73-75, 206-226; Lesger, ‘Lange-termijn processen’. Also see Chapter 6. 52 Hart, ‘Geschiedenis van de houthandel’, 86-87. 53 Åström, ‘Technology and timber exports’, 2-5; Åström, ‘North European timber exports’, 86-90; Åström, From tar to timber; Layton, ‘Timber and naval stores’, 266, 282-283; Kaukiainen, ‘Finland and the core’, 342-345; Ahvenainen, ‘Finnish sawn timber’, 149-152; Kaukiainen, ‘Dutch shipping’, 452-453. 54 Boëthius, ‘Trävaruexportens’, 294; Soom, ‘Ostbaltische Holzhandel’, 87-88, 93-94, 96-98; Soom, ‘Das Fremdkapital’; Fuhrmann, The origins of capitalism in Russia, 169-170; Scheltjens and Van Koningsbrugge, Van onze reporter ter plaatse, 93, 97-99, 101-102. Personal communication with Scheltjens.

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218  |  The economic consequences of the Dutch

lower than was customary in the Republic. This case should thus be seen as an early case of outsourcing.55 This explains the angry reaction of their colleagues who had stayed in the Netherlands. They argued that the import of sawn timber over 14 feet long from the Baltic should subsequently be taxed heavily or prohibited. The industry around the Gulf of Finland robbed them of exactly the type of work in which previously only they had excelled.

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7.5 Conclusion During the early modern period timber played an important role in the economies of northern Europe. Resource endowment had made Western Europe largely reliant on imports to meet its burgeoning demand and Norway, the Baltic and Germany were able to profit by becoming the most important exporters. Since nature also determined the type and size of the available timber, Norway specialized in smaller dimensions of timber whereas larger dimensions could be obtained in Germany and the Baltic. It is also important to realise, though, that early and/or large-scale felling could also change the context in which a timber-exporting region operated. Due to large demand from regions such as the Netherlands, the easily accessible coastal forests of southern Norway were exhausted and timber subsequently had to be imported from forests that were located further inland. This process facilitated the rise of a class of wealthy Norwegian merchants. The development of Europe’s core economies thus had a clear impact on the development and organisation of the Norwegian economy. Since standardisation of the types and sizes of timber used in construction and shipbuilding was lacking, at least part of the processing had to be performed close to the centre of consumption. Remarkably, the way in which these supplies of timber were processed differed from region to region. Simple water-powered sawmills with one frame and one saw were in use in Scotland, Norway and the Baltic. In the latter two regions such sawmills had already been in use from around 1500, but in Scotland the first sawmills were probably only introduced during the early eighteenth century. In the eastern part of England and in the western Netherlands water power could not be used to power sawmills and one was thus dependent on either muscle or wind. Using their long experience with windmills the Dutch perfected the technique of sawing timber. From the late sixteenth century onwards they

55 Soom, ‘Ostbaltische Holzhandel’; Soom, ‘Das Fremdkapital’; Åström, ‘Technology and timber exports’; Åström, ‘North European timber exports’, 89-90; Mead, An historical geography, 142-143; Ahvenainen, ‘Finnish sawn timber’, 149-150, 160; Kaukiainen, ‘Finland and the core’, 344, 347; Kaukiainen, ‘Dutch shipping’.

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Relative prices, markets and producers  |  219

used advanced windmills that were equipped with multiple frames that could each carry many fine saw blades. It was for this reason that the Norwegians coined the term silkesag or silk saw. Just as had happened with other Dutch mill inventions there were no hindrances to the exchange of technology and this superior sawmilling technique eventually found its way abroad. The dissemination pattern was quite uneven, however. Of the timber-exporting regions, the Baltic – and particularly the lands around the Gulf of Finland – was first to adopt the Dutch technique. Norway, however, only adopted the new technique on a large scale from the early nineteenth century onwards. In England – Holland’s major commercial competitor – the technique was also introduced relatively late and England largely continued to use manual labour to process timber until late in the eighteenth century. Obviously the (non-)adoption of the superior Dutch technique has attracted much scholarly attention as it has associated each region’s economic history with terms as modern or backward. Chapters 6 and 7 have explored the explanations that have previously been proposed by historians in order to explain this phenomenon with respect to their respective regions of study. As far as can be determined, these previous explanations did not suffice or needed elaboration and Chapters 6 and 7 have therefore tried to develop a coherent framework, which could capture all observed phenomena. Using a model introduced by Paul David, these chapters have concluded that the different developments in northern Europe could be very well explained by relative factor prices and the price of the capital goods. When the price of labour increased relative to the price of capital, the incentive of entrepreneurs to economise on labour input grew. Since each source of propulsion (muscle, water or wind) had a different cost curve, shifting from one technology to the other only became possible once a certain threshold had been reached. By slightly rearranging David’s model, an idea of the rates of return at which investors found it worthwhile to invest in the mechanisation process could be obtained. It has been shown that the players in northern Europe’s timber markets were well aware of the opportunities and constraints present there. Norwegian entrepreneurs used a simple technique to produce deals and only introduced the silkesag once the relative prices of labour and capital allowed for it. The low Norwegian average production costs meant that Dutch entrepreneurs could only competitively process timber of large dimensions. Part of the work on smaller–dimensioned timber was thus left to Norwegian entrepreneurs since their water-powered mills offered a cheaper alternative to processing in the Netherlands. Large timber, however, was purchased by Dutch merchants from the German and Baltic timber markets and processed in the Netherlands. Eventually some Dutch entrepreneurs found it worth-

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220  |  The economic consequences of the Dutch

while to transfer their businesses to the north-eastern Baltic in order to further reduce average production costs: here they could combine low wages with cheap Dutch capital. Obviously relative prices in each of the timber processing regions could have changed as time progressed. In England this meant that the first initiative to establish a sawmilling industry was recorded during the 1760s and in Norway the relative price of labour became high enough from the late eighteenth century onwards to increasingly use the silkesag in production. That initially this was only the case in the region between Kristiansand and Drammen had to do with the fact that the variance in timber size was lower there. This meant that the costly sorting of timber had already been done by nature itself. Until such changes in relative prices became large enough to allow for the introduction of more advanced technologies, merchants and entrepreneurs tried to reduce costs as much as possible. Chapter 6 documented that English merchants imported as much sawn timber as possible, transferred the shipbuilding industry to the northern part of the country and imported ships from the Netherlands and America. The present chapter has shown that continued demand from the core economies also drove Norwegian entrepreneurs ever closer to their possibilities frontier. They tried to decrease average production costs by improving the transportation infrastructure, using thinner saw blades, equipping some mills with a second blade and increasingly concentrating production in the hands of a few large houses. Given this evidence it cannot only be concluded that the growth of the Dutch and English economies had a clear impact on the peripheral timbersupplying regions, but also that these peripheral economies made an important contribution to the growth of the core economies by offering raw materials and lower average production costs. The fact that merchants and entrepreneurs all across northern Europe were continuously searching and finding the lowest-cost solutions clearly demonstrates that markets in northern Europe were strongly interdependent.

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8   | Conclusion The growth phase that the Dutch economy went through during the early modern period was unprecedented in pre-industrial Europe. This process had set in much earlier than the Golden Age itself, but it was only by the late sixteenth century that the economic success of Antwerp and the southern Netherlands could be eclipsed. The rise of the secondary and tertiary sectors and the growth of Holland’s towns were central to this process. The result was an increase in international trade, a large demand for labour and a search for foreign investment opportunities. As transport by water was easier and cheaper than transport by land during the early modern period, the regions around the North Sea – being located at modest distances from Holland – were most likely to experience these effects of Dutch economic growth. Given the lower cost of transport over water and the fact that the North Sea is geographically ‘closed-off’ meant that there were many similarities to Braudel’s concept of the inland sea as a facilitator of exchange, which he applied to the Mediterranean Sea. This book has focused on the economic interaction that took place around the North Sea. The North Sea region has been analysed before – by Roding and Heerma van Voss for example – but the economic interaction that took place as a result of Dutch growth has not previously been studied systematically. As previous research has primarily been directed towards analysing the origins of growth rather than the impact of it on nearby regions, this aspect of Dutch growth has not received the attention it was due. Given this hiatus in the literature, the question was raised in Chapter 1 of what the economic consequences of Dutch dominance were in the North Sea coastal regions. As it was the intention to look at the markets for goods, labour and capital, it was decided that the factor price equalisation theorem and its later adjustments should be the point of departure. Central to the factor price equalisation theorem is that the prices of goods, labour and capital converge as a result of trade, migration and foreign investment. Such flows – from regions where the prices are low to regions where prices are high – change the relative supplies in sending and receiving regions and, as a result, influence market prices. As was explained, a close eye must be kept on

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Conclusion  |  223

the underlying assumptions and the possibility of endogenous growth in the regions surrounding the Dutch Republic, because these might have been able to distort the expected outcomes on prices. Given this point of departure, Chapters 2, 3 and 4 set out to test whether the prices of goods, labour and capital respectively, converged. Given the bilateral nature of the first part of this book, the second part took a broader point of view by looking at the region as a whole. Section 8.1 will briefly review each chapter and present the research results and section 8.2 will subsequently take these points further by providing a broad interpretation. Finally, section 8.3 will complete this book with some concluding remarks.

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8.1 Research results Chapter 2 focused on the market for goods. The growth of the Dutch economy was an important stimulus to the increase in international trade. The analysis, however, was limited to the grain market because the necessary price data were only available there. Section 2.2 set out to discuss the elements that caused the price gap between the sending and receiving regions. A distinction was made between transport costs, transaction costs and an unaccounted-for price differential. It was shown that price convergence should be measured by expressing the price gap in real terms by relating it to the cost of goods. Convergence occurs as the prices of the elements making up the price gap decline relative to goods prices. It was shown, however, that there could be at least one situation in which shifting demand and supply curves would lead to increased trading and regions would clearly have had to become more dependent on each other, where price convergence was not the outcome (see Figure 2.2). Moreover, as long as the price differential stays smaller than the costs associated with transporting a product, the observed price gap may move in any direction without saying anything about markets actually being connected. For this reason it was decided to also look at the synchronous movement of prices. In section 2.3 it was explained that – in contrast to labour and capital, where the direction of flows was much more focused – grain was traded all across the North Sea. This complicated the study of price convergence because it was less obvious to relate foreign prices to price levels in the Dutch Republic. For this reason the coefficient of variation was used to test whether grain prices around the North Sea converged. However, no long-term trend towards a set regional price could be documented. This suggested that no decrease in price of the elements making up the price gap occurred between 1600 and 1800. In order to elaborate on this, information on the individual elements was subsequently collected. With respect to transport costs, data on

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224  |  The economic consequences of the Dutch

the grain trade with the Baltic showed that no decrease in real freight rates took place. To check whether this was specific to the grain trade or whether it applied to shipping in general, freight rates for an important alternative route were studied. This concerned the freight rates for shipping timber from Norway to Amsterdam, which were collected from archival and published sources. In Figures 2.6 and 2.7 these data were used to illustrate that reductions in freight rates were absent for trade in general. A similar procedure was followed for transaction costs (see Figure 2.8). Here too, real transaction prices were not lower by 1800 than they were around 1600. In addition, profit margins were taken to represent the unaccounted-for price differential. Given their modest value and the competition among the many grain merchants already present in Amsterdam alone, price convergence was unlikely to have occurred due to profit margins becoming smaller. Following these outcomes and the more fundamental critique of looking solely at price convergence, the second part of Chapter 2 focused on the extent to which price movements were or became synchronised. Using a simple econometric model, some improvements were charted that took place through time. It has been argued that the improving information network – of which Amsterdam was the centre – was responsible for this. It has been shown that this was the result of a process taking place in all the regions of Northern Europe, in which postal services were set up and approved. This allowed for the faster exchange of information and subsequently better arbitrage during the early stages of increasing price gaps. The market for labour was central to Chapter 3. The questions raised were whether the high wages paid in the western Netherlands led to migration and whether this migration made wages in northern Europe converge to a common level. The data collected by Van Lottum were used to illustrate that the rise of the Dutch economy led to the appearance of an international labour market and large streams of migrants coming to the Republic in search of work. Given the fact that this process has been described by him in detail, Chapter 3 focused on the effects that the existence of this market had on wages. The first objective of the chapter was to broaden the rather meagre data base that had been used in previous research. Therefore, silver and grain wages for a range of secondary towns were collected. As a result, the geographical coverage improved considerably. For the towns of Copenhagen and Stockholm sufficient data were available to allow the computation of welfare ratios; a real wage measure taking into account the consumption of household members and the number of days worked during the year. This was a welcome addition to the available data for northern Europe, as, until now, such welfare ratios had only been available for the western Netherlands, Antwerp, London and Gdansk. One of the conclusions of Chapter 3 was that there were substantial differ-

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Conclusion  |  225

ences not only in silver and grain wages, but also in welfare ratios in northern Europe. Wage convergence was only found for England and Scotland. However, as has been explained in the case-study of the Scottish economy made in section 3.4, migration to the Dutch Republic was of relatively little importance when compared with Scottish migration as a whole. As was also illustrated, migration to other locations could not have been responsible for the improved position of Scottish wages either. The observed convergence of silver wages thus had to be caused by an increased demand for labour within Scotland itself. A discussion of Scottish economic development showed that the rise of certain industrial sectors (e.g. the coal and linen industries), trade (e.g. tobacco) and agriculture were responsible for the increased competition for labour, which led to the observed wage increase. Growth was uneven, however, in the sense that agriculture could not keep up with growth in other sectors and, as a result, the rise of silver wages was cancelled out by a parallel increase in grain prices and therefore real wages did not change much. The second case-study (section 3.5) was dedicated to a region that did send many workers to the Dutch Republic and for which wage convergence could thus be expected: Norway. However, no wage data could be found for the seventeenth century for Norway. For the eighteenth century wages were available, but convergence could not be documented. As Norwegian migration was still significant during this period, the question was raised as to why wages did not increase. The case-study revealed a picture of a country with low levels of urbanisation and proletarianisation. Additionally, there was a large labour surplus because of the high rate of natural increase. In other words, the population size of Norway increased so rapidly, that the population was never even close to being fully employed. As a result, one of the crucial assumptions of the factor price equalisation theorem could not be met and consequently migration did not lead to the convergence of wage levels. The capital market was discussed in Chapter 4. Central to this chapter was the notion that the Golden Age resulted in the accumulation of capital in Dutch hands. This capital was eventually channelled abroad in search for investment opportunities. As most of the information on Dutch foreign investment that was already available and analysed related to England, it was decided to collect data for another North Sea region – Denmark-Norway. In this way the analysis was not limited to a single developed capital market and consequently the spectrum of capital market development could be covered much better. As much information as possible was collected about the credit extended by Dutch capitalists to Dano-Norwegian merchants and monarchs. References to this credit were sought in various source publications and the card index of Amsterdam’s notarial archive so that the required data could subsequently be extracted from the archival documents in Amsterdam’s municipal archive and the Danish national archives in Copenhagen. In this way

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226  |  The economic consequences of the Dutch

a fair amount of information on Dutch loans to the Dano-Nowegian monarchs could be assembled in Appendix IV. Similarly, information was collected for semi-private companies (Appendix V) and the Danish West-Indian plantations (Appendix VI). Using published and archival sources on the credit provided to Norwegian merchants, section 4.2 was able to document the prominent role of the Dutch creditors. Scattered pieces of information showed that substantial loans – some of them up to 200,000 guilders – had already been provided to Dano-Norwegian merchants during the seventeenth century. Unfortunately, a systematic analysis of these loans could not be made due to the absence of structural source materials. This proved to be less problematic with respect to the loans to monarchs, because they had left many traces in the archives. Using the collected evidence it was possible to show that the extension of credit probably had its roots in the sixteenth century, but that it was only from the early seventeenth century onwards that Dutch capital started to play a more significant role. The merchant house of Marselis played a central role in the credit that was extended to the monarchs during the seventeenth century, but as this century came to a close, specialised banking houses such as Widow Jan Balde and Son took over. During the second half of the eighteenth century the houses of Boas, Clifford and Dull were central to the raising of credit in the Dutch Republic. In absolute terms this was the period during which these loans reached peaks of over 25 million guilders (see Figure 4.2). The remainder of Chapter 4 was occupied with studying the interest rates on the loans that were extended to the monarchs. Figure 4.3 showed that these rates decreased sharply from about 1560 onwards. The question was raised of how this process should be interpreted and an analysis was made of both the supply and demand sides. A decrease in interest rates and transaction costs in the Dutch Republic could only explain part of this process. Additionally, the risk of lending to the Dano-Norwegian monarchs – measured by the additional premium charged on their loans when compared with the loans to the States of Holland – decreased from 3.0% additional interest in 1700 to 1.5% during the period 1775-1788. More advanced financial techniques – namely assigning future income from tolls for interest payments and redemption – increased the Danish monarchs’ credibility. The growing income from the Sound toll, allowed for the rapid increase in borrowing that was shown in Figure 4.2. This increase, however, would not have been possible without an abundant supply of Dutch capital. To enable a broader scope of analysis, Chapter 5 reconstructed Dutch investment in England in order to allow for a comparison with the sums that were invested in Denmark-Norway. The reconstruction was based on published benchmark estimates of Dutch holdings of English funds (see Figure 5.2 and Appendix VII). Prior to 1770 the differences between these new es-

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Conclusion  |  227

timates and the existing historiographical wisdom were only minor. During the last decades of the eighteenth century, however, differences of up to one hundred million guilders were found. This is most probably caused by the fact that the old assessments were to a large extent based on exaggerated contemporary assessments of the size of Dutch foreign investment. In absolute terms Dutch investment in England was larger. It has been argued, however, that analysing foreign investment in absolute terms is misleading because differences in funding requirements existed between the receiving countries. Following the literature in the field of financial geography, the absolute sums were related to the size of the receiving economies (GDP). The outcome was surprising since it showed that from around 1770 – the time at which Dutch investment in England reached its peak – Dutch investment per unit of GDP was higher in Denmark-Norway than in England. This makes the previously held conviction that the Dutch invested so much in England because there was already a well-developed stock market there doubtful, or at least superfluous. It was argued in Chapter 5 that when realising investments, creditors and debtors searched for more efficient institutional frameworks to facilitate the international exchange of capital. Investors assigned much importance to the size and nature of the collateral a debtor could offer. Because the Dano-Norwegian monarchs had exactly such a collateral at their disposal – namely their income from the Sound tolls – and because they were able to create the perception of being a trustworthy debtor, they could more credibly commit to their loans and consequently they were highly successful in raising Dutch credits. When income from the Sound tolls started to increase from around 1730, the Danish monarchs were better able to negotiate loans in the Dutch Republic. In this international setting, creditors and debtors operated as modern economic theory would expect them to. The Dutch capitalists were willing to finance almost anything, but they continually strove to make the return on their credits more secure. All three markets together and the region as a whole were studied in Chapters 6 and 7. One product – timber – was central to the analysis. The questions that were raised included where and how this timber was actually processed. Chapter 6 focused on the differences between the Dutch Republic and England and Chapter 7 discussed the differences that existed between the Dutch Republic and Norway. From the late sixteenth century onwards, Holland had witnessed the introduction of the wind-powered sawmill. Chapter 6 questioned why England – alongside Holland as one of the more developed parts of the North Sea region – did not use similar processing technologies to those employed in Holland. Similar machinery was not introduced in England some two hundred years later. Relating sawyers’ wages to interest rates and the cost of the capital goods, it was possible to show that mechanisation only became fea-

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228  |  The economic consequences of the Dutch

sible during the course of the eighteenth century. When a sawmill was finally established in 1767 at Limehouse, near London, an angry crowd of hand-sawyers demolished the mill. It was shown that this behaviour was part of a repertoire of resistance to labour-saving techniques that took away jobs from the working population. In the Netherlands, similar resistance also took place during the first half of the seventeenth century. But because these were times of economic growth and workers could find work elsewhere relatively easily, resistance did not continue for a long time, nor did it become violent. Despite the fact that no sawmills were to be found in England for a long time, the English did try to deal with their wage levels as they were among the highest in northern Europe. Because the relative price of labour was not high enough to allow for domestic mechanisation, the English implemented at least three alternative strategies to lower production costs. Firstly, many ships were imported from Holland and the American colonies and the domestic shipbuilding industry was transferred to the northern part of the country. Secondly, high-quality wainscot – i.e. thinly sawn oak boards used, for example, for panelling – was imported from Holland. The close link between English imports and Dutch production was highlighted by documenting the relationship between English import figures, the number of Dutch wainscot auctions, the number of specialised sawmills and the amount of timber that was imported from Germany. Thirdly, the ordinary sawn timber was imported from Norway and later from the Baltic as well. In contrast to the Dutch, who had a processing industry of their own, the English largely restricted their imports to sawn dimensions. Chapter 7 tackled a comparable case, but attention was now paid to the question of why a simple processing technology was used in Norway (the single-framed one-bladed sawmill) when a much more productive technology was available in the Dutch Republic (the multi-framed multi-bladed sawmill). Analogous to the concept of relative factor costs used in Chapter 6, it was argued that the relatively abundant supply of labour favoured more labourintense modes of production. Before the early nineteenth century Norwegian entrepreneurs simply had no incentive to economise on labour input. In a similar way to England, Norwegian entrepreneurs also found other ways of reducing production costs. First of all they started to improve infrastructure because transportation costs weighed heavily on the average production costs. Secondly, mills were equipped with thinner sawblades and some mills were even equipped with two blades. Finally, in at least the Christiania hinterland, production became concentrated in the hands of a small group of large entrepreneurs. This suggests the presence of economies of scale at one level of the production or trade column. But why did Dutch merchants continue to import sawn timber from Norway if they had access to a domestic sawmilling industry themselves? A

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Conclusion  |  229

study of production costs in Holland and Norway sheds light on this question. The necessary Dutch information was collected from piece rates as they were stipulated by the guilds in Rotterdam and Amsterdam. Additional information was also found in private contacts for Amsterdam and the Zaan region. The Norwegian data were derived from the company papers of Mogens Lauritzøn and his son Erich Mogensen, two of the larger Christiania houses active in the timber industry. Through this analysis it was possible to show that the comparative advantage of the Dutch lay in the processing in one time of the longer dimensions of timber. This was caused by the high initial costs of starting to saw. It was therefore advantageous for the Dutch to have smaller dimensions of timber sawn in Norway where this could be done at lower costs. In order to profit as much as possible from the domestic processing capacity, the Dutch tried to import as much long and unprocessed timber as possible. This explains the importance of imports from the Rhine hinterland, and the rising importance of timber from the Baltic in particular. Chapters 6 and 7 thus showed that the North Sea region increasingly became a coherent spatial economy. Entrepreneurs and merchants on all sides of the North Sea played an important role, because they were always looking for ways to lower average production costs. These two chapters argued that increasing international specialisation as well as some domestic improvements was responsible for bringing about these lower costs. The growth of the Dutch economy was instrumental in steering these processes. Dutch demand resulted in large timber exports from regions such as Norway, while at the same time it led to the export of processed timber and ships to England as well. In fulfilling this spill function, the growth of the Republic increasingly made the North Sea region into a coherent spatial economy.

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8.2 Interpretation Central to Chapters 2, 3 and 4 was the question of whether the prices paid for goods, labour and capital in the various North Sea regions and Holland converged to a single level. In order to give an answer to this question, series of grain prices, wages and interest rates were collected. It was found that in the goods and labour markets prices and wages did not converge. In the capital market, on the other hand, prices did converge. Given the volume of trade and the number of migrants, this raised the question of why convergence was present in only one market and absent in the other two. As was discussed in Chapter 2, the convergence of goods prices could only be realised through a decrease in the real price gap. Between 1600 and 1800, however, such a decrease could not be observed because transportation costs, transaction costs and profit margins did not change in relation

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230  |  The economic consequences of the Dutch

to goods prices. Apparently the modest increase in ton-per-man ratios – as found by Lucassen and Unger – was offset by the changing price of capital goods, labour and/or the transported goods. In addition Chapter 2 showed that merchants operated at the frontier of what was possible given the means of transportation available. The information infrastructure was gradually improved and it was shown through a number of econometrical tests that this led to the further synchronisation of price movements and faster price adjustments. However, before the introduction of more advanced shipping techniques (i.e. steam technology) real shipping costs could not be reduced. For the goods market this meant that price convergence was simply not possible in the two centuries under review. Chapter 3 was occupied with the labour market. The growth of the Dutch economy resulted in a large demand for labour. In consequence wages were high. This combination created an important incentive for foreign workers to migrate to the Dutch Republic. These early modern labourers thus responded to the Dutch demand for labour, as economic theory would expect, by migrating from low-wage regions to a high-wage region. Their permanent or temporary presence alleviated the pressure on the Dutch labour market. This effect could not be illustrated, however, because it would require a counterfactual analysis of the interplay between demand for and supply of labour in the Dutch economy. Determining how high wages would have been in the absence of migration is not possible. It was argued that the large number of foreign workers would have prevented wages from increasing even more than they did. Taking this into account, what would actually be measured by relating peripheral wages to Dutch wages is the extent to which wages in the periphery increased relative to wages in the core. Since the number of migrants was too small to create a situation of full employment in the laboursending regions, labour shortages and the resulting increases in wages did not occur in the peripheral regions. The reason for this was the high fertility regime that characterised these regions. As explained by Van Lottum, migration to the Dutch Republic was simply no more than a vent that could release workers when the demographic pressure became too high. It was also suggested that the low level of proletarianisation might have played a role in diminishing the effects that labour migration had on wage formation. Only in two cases – in the Scottish and English economies – were rising relative wages found, but it was shown that no causal relationship with migration (to the Dutch Republic) existed. The endogenous development of these economies was clearly responsible for a larger demand for labour and higher wages. In Chapter 4, it was shown that cheap Dutch capital found its way to higher returns abroad. During the period under review international differences in the price of capital became smaller. Dutch investment in DenmarkNorway functioned as case-study. At the heart of this process lay the finan-

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Conclusion  |  231

cial-institutional context and the abundance of capital in the Dutch Republic. Together these meant that capital was relatively cheap there. Since capital yielded higher returns outside the Dutch Republic, Dutch capitalists increasingly sought investment opportunities abroad. Summarizing the theoretical aspects of foreign investment, Chapter 4 showed that information, market access and security were the central concerns of investors. Availability, ease of doing business and trustworthiness were translated into a risk premium that debtors had to pay in addition to the recompense for borrowing money. Therefore pulling down the barriers that might increase this risk premium was the way for foreign debtors to lower the costs of borrowing capital in the Dutch Republic. Basically investors, merchants, companies and monarchs thus faced an organisational problem. In contrast to high fertility rates or stagnant transport technology, organisational problems could already be faced during the early modern period. This was also shown in Chapter 3 regarding the improvements in the information network. For this reason it is probable that the capital market was the only market where substantial price convergence could actually be observed. With respect to the region as a whole, what does the absence of large-scale convergence say about its economic functioning and integration? Given that actual convergence was limited to the capital market, the question could be raised, for example, of whether this meant that with respect to the goods and labour markets the growth of the Dutch economy went unobserved in the other North Sea regions. Chapter 3 briefly pointed towards the non-economic cultural effects of migration, but there were also clear consequences econo­ mically. The improving distribution of information across northern Europe – in which Amsterdam fulfilled a central role – meant that individual merchants had fewer chances of making extraordinary profits, but for consumers it meant that prices became less volatile. The demand for labour implied that foreign workers could settle in the Dutch Republic temporarily or permanently and enjoy the high living standards that were common there. Some of them managed to send or take money home, which must have raised living standards in the peripheral regions. In addition, the disturbance of the age structure in labour-sending regions must have had an influence on everyday life. Although convergence was lacking, the economic development of the Dutch Republic thus had a demonstrable impact on the regions bordering the North Sea. Finally, it was demonstrated in Chapters 6 and 7 through case-studies of the timber industry in northern Europe, that production and trade were organised efficiently in the sense that regions were aware of what to do themselves and what to leave to others. As a result, labour-intensive work was done in Norway and capital-intensive processing was left to the Dutch. Others – the English in this case – adjusted local production and processing

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232  |  The economic consequences of the Dutch

as well as trade in order to profit from these regional differences. The growth of the Dutch economy thus left much work to be done in Norway, but only the type of work that the Dutch could not themselves do more efficiently. Dutch economic development was central to bringing about this organisation of the North Sea economy.

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8.3 Concluding remarks Reviewing all of this, it must be concluded that it was only with respect to the capital market that peripheral North Sea regions felt the effect of Dutch economic growth on local prices as the low Dutch interest rates became common in these places as well. These lower capital costs were the result of Dutch foreign investments, which in turn were made possible through the accumulation of capital in the Republic. Dutch economic development thus had a modest impact on the price of goods, and labour in the economies bordering the North Sea. However, with respect to these markets some other non-price effects were found. The improvement of the information infrastructure in northern Europe – in which Amsterdam played a central role – led to a decrease in the volatility of prices. Return migration and remittances – made possible by the opportunities of work and high wages in the Dutch Republic – improved living standards in labour-sending regions. With regard to economic theory, it became clear that in real life it is hard to find a situation to which the factor price equalisation theorem can be applied without any reservations. At various points this book came across assumptions in the theory that in reality were not easily met. The absence of transport costs, full employment and no frictions in the exchange of capital are given as examples. What this book furthermore showed was that at least once prior to the Industrial Revolution, there was one blossoming economy that profoundly influenced regions located hundreds of kilometres away. That this did not result in the large-scale convergence of prices should be attributed to the problematic assumptions underlying the factor price equalisation theorem. When these assumptions are taken into account, however, it becomes clear that this society operated at the frontier of what was technologically and institutionally possible, or tried its best to approach this frontier. Concerning this frontier, the logical economic functioning of the North Sea region was noteworthy. Labour found its way from low-wage areas to the high-wage Dutch Republic and capital flowed from the low-interest Republic to regions where interest rates were higher. Where it was possible, the information network was improved so that merchants were aware earlier of situations that allowed for arbitrage between the various regions. The way in which specialisation was carried out in the timber-processing industry was

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Conclusion  |  233

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also remarkable. Without a doubt, contemporaries were aware of the ways in which the average production costs could be lowered. That this could go a long way was illustrated by the fact that Dutch entrepreneurs had found that it was more efficient to process short types of timber in the non-core regions and longer types of timber in the Dutch Republic. This book showed that the Dutch economy took the central place in all of these processes and by doing so it played an important role in turning the North Sea region into an integrated spatial economy.

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Appendix I Grain prices and data properties

The following summarizes where the data that have been used in Chapter 2 were found. Allen and Unger, Database, provides much of this information in database format. Belgium

Denmark

England

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France Germany Italy The Netherlands Norway

Poland Scotland

Verlinden, Craeybeckx and Scholliers, Dokumenten. The metallic content of the Flemish currency is given in the publication (II, xxxii-xxxix) – and with that the content of the Brabant coin as well as there existed a constant ratio between the two – so that prices could easily be converted to the corresponding grams of silver. ‘Kapitelstakster’. The metallic content of the skilling was based on Christiansen, Value of the Danish skilling. Friis and Glamann, Prices and wages, 119-140, provide information on weights and measures. Mitchell and Deane, British historical statistics; Jacks, Miscellaneous price data. Mestayer, ‘Les prix du blé’. Ebeling and Irsigler, Getreideumsatz. Malanima, Wheat prices in Tuscany. Posthumus, Nederlandse prijsgeschiedenis; Verrijn Stuart, Overzicht van marktprijzen. Herstad, Kornmonopolet, 384-391, provides average prices per five year periods. The annual quotations were kindly provided to me by Herstad. Christiansen, Value of the Danish skilling, and Lunden, Norges landbrukshistorie, 416, 418-419, provide information on weights, measures and currency. Furtak, Ceny w Gdan´sku; Pelc, Ceny w Gdan´sku. Gibson and Smout, Prices, food and wages. Units of capacity can be found on page 373. Using page 7 and Cullen, Smout and Gibson, ‘Comparative development’, 115, the ratio between the pound Scots and the

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Appendices  |  235

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Sweden

pound sterling could be determined. The silver content of the pound sterling was subsequently used to convert to grams of silver. Gibson and Smout, Scottish economic history database, contains some extended price series, which are not available in the book. Jansson, Andersson Palm and Söderberg, Dagligt bröd, 82-83; Jörberg, A history of prices in Sweden, 119122. Communication with professor Johan Söderberg (Stockholm University) about the volume of the grain barrel. See Appendix II for a discussion of the Swedish currency and its silver content.

The error-correction model used in Chapter 2 requires the data to be nonstationary (random); first differences (ΔP), however, should be stationary (not-random). A series is called weakly stationary when its mean and variance are constant over time. According to Gujarati this type of stationarity is acceptable in ‘most practical situations’. A visual inspection of the data showed that the eighteenth-century time series, especially those after 1750, have inflationary trends. The resulting non-constant means make these series non-stationary. The standard method to detect (non-)stationarity is the so-called unit-root test. Here, a rather standard test – the augmented DickeyFuller test – was performed on the logarithmically (ln; the natural logarithm) transformed data. Test results showed that the data have non-stationary levels and stationary first differences. Pre-1750 time series can be qualified better by looking at their variance, as their means tend to be constant. It is clear that the variance was not constant over time and that the difference between the largest and smallest value was reduced while transforming the data from the original entries to natural logarithms and subsequently to the first differences of these logarithms. Because the variance is not constant over time the series can be treated as being non-stationary while becoming more stationary when being transformed to first differences. These outcomes are unsurprising, as previous research by Persson and Baten and Wallusch, among others, has shown that most early modern price series are non-stationary and have stationary first differences. It will therefore be assumed that all price series used in this research are non-stationary and have stationary first differences. This means that the data can be used as input for the error-correction model.

 

Gujarati, Basic econometrics, 713 note 1. Persson, Grain markets in Europe, 116; Baten and Wallusch, ‘Market integration’.

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Appendix II Nominal wages, metallic content and grain prices

The Netherlands

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De Vries and Van der Woude, The first modern economy, 610-613, collected wages for the western and eastern Netherlands for various occupations. For reasons of consistent data use, it was decided to follow Allen, European wages and prices, and use the wages of hodmen for the western Netherlands. Unfortunately, wages for this type of occupation are not available for the eastern Netherlands after 1680. For this part of the country, unskilled labourers’ wages were therefore used for the whole period 1500-1800. Grain prices for the western Netherlands come from Posthumus, Nederlandse prijsgeschiedenis, II, product series 391 (wheat), and Van Zanden, Prices and wages (rye). For the eastern Netherlands data were collected from Verrijn Stuart, Overzicht van marktprijzen (also available as Allen and Unger, Database). The silver content of the guilder was based on data provided by Allen and Unger, Database. Since they did not give data for before 1531 or after 1792, values for 15001530 and 1793-1800 were determined based on the nominal and silver wages given by De Vries and Van der Woude, The first modern economy, 610-611, and Allen, Data great divergence.

Belgium For Antwerp the wages presented in Allen, European wages and prices, were used. Summer wages of building labourers in Ghent were based on data published in Verlinden, Craeybeckx and Scholliers, Dokumenten, II, 361, 364-365, 367-368, 378-378, 383-384, 388-389, 429-430, 437-442, 460-461. Information on grain prices was collected from Verlinden, Craeybeckx and Scholliers, Dokumenten, I, 64-65, 88-90, 258-259, 277-278, 519-520, and Verlinden, Craeybeckx and Scholliers, Dokumenten, IV, 7-34, 338-340. Information on grain measures is given in Verlinden, Craeybeckx and Scholliers, Dokumenten, I, 5-7, and Verlinden, Craeybeckx and Scholliers,

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Appendices  |  237

Dokumenten, II, xxviii-xxxi. The metallic content of the Flemish currency is given in Verlinden, Craeybeckx and Scholliers, Dokumenten, II, xxxii-xxxix, and with that the content of the Brabant coin as well, as there was a constant ratio between the two. Prices could thus be converted easily to the corresponding grams of silver.

England Wage data for Carlisle, Chester, Hull, Lincoln and Newcastle were collected from Woodward, Men at work, 250-275. Additional data for Newcastle were taken from Eccleston, ‘A survey of wage rates’, 251-253. Gilboy, Wages, 259-261, 265-268, contains evidence for Exeter and Maidstone. Wages for Cambridge, Dover and Oxford are presented in Van Zanden, ‘The “revolt of the early modernists”’, 638-639, and Van Zanden, Wages and the cost of living. For London the wages presented in Allen, European wages and prices, were used. Jacks, Miscellaneous price data, offers grain prices for Cambridge and London. Wheat prices for Maidstone have been published by Gilboy, Wages, 288-290, and Oxford grain prices were based on Poynder, Monthly grain prices. Dover wheat prices can be found in Baker, Agricultural prices, 72-73, and Allen and Unger, Database, gives grain prices for Exeter. The silver content of the currency can be found in Allen and Unger, Database.

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Scotland Edinburgh and Aberdeen building labourers’ wages as recorded in the town council accounts were taken from Gibson and Smout, Prices, food and wages, 313-318. Since nominal wages in Edinburgh were the same in 1656-1657 and in 1736/1739 and because the silver content of the currency did not change, wages were interpolated in between. Grain prices were based on prices provided on pages 54-55, 65, 102-105, 118-119, and in Allen and Unger, Database. Where needed, a linear regression was used to link the series. Information on grain measures can be found in Gibson and Smout, Prices, food and wages, 373. Using Gibson and Smout, Prices, food and wages, 7, and Cullen, Smout and Gibson, ‘Comparative development’, 115, the ratio between the pound Scots and the pound sterling could be determined. The silver content of the pound sterling was subsequently used to convert wages into grams of silver.

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238  |  The economic consequences of the Dutch

Norway Fløystad, ‘Arbeidsmandens lod’, 124, 134, 137, 148, published the wages of labourers who worked in the blast furnaces of the Baaseland ironworks, which was located close to Tvedestrand in south-eastern Norway. The data cover the year 1709 and the period 1726-1796 (data entry for every fifth year). Fløystad’s research showed that – as in other parts of Europe – three groups of labourers could be discerned: ordinary labourers, journeymen and masters. Following this distinction, I have chosen to use the wages of those labourers that fit into the ordinary labourers’ category: malmbankere and slaggdragere. They performed labour that required few or no skills at all. Wages were given per four working weeks and according to the author, these consisted of 24 working days. Wages could be converted to grams of silver through the silver content of the Danish rigsdaler, which is given in Christiansen, Value of the Danish skilling. Rye prices were taken from Fløystad, ‘Arbeidsmandens lod’, 584-585. According to Lunden, Norges landbrukshistorie, 416, the grain barrel (tønne) contained 139.4 litres.

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Sweden Annual wages of labourers are presented in Söderberg, ‘Real wage trends’, 173-174 (the underlying summer wages, which were kindly made available by the author, were used here); Jansson, Andersson Palm and Söderberg, Dagligt bröd, 59-61, 74-77; and Söderberg, Prices in Stockholm. Wages for the period 1720-1726 were communicated to me by professor Söderberg. Grain prices were collected from Jörberg, A history of prices in Sweden, 119122, 133-137; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 62-65, 82-83; and Söderberg, Prices in Stockholm. Söderberg partly has ‘grain’ prices instead of rye. For the overlapping periods (beginning and end) the average price ratio with rye was calculated. The ratios at the beginning and end were subsequently interpolated and the grain prices were used to determine rye prices. Professor Johan Söderberg, who has consulted professor Mats Morell, has kindly made a series on the volume of the grain barrel available. Wallroth, Sveriges mynt, gives the silver content of the riksdaler and Edvinsson, ‘History of the currency system’, has collected exchange rates to the mark örtug and mark kopparmynt. These data could be used for the period 1539-1777 to determine the silver content of the mark. For the period 17781800 the exchange rate with the Hamburg reichstaler banco was used. These data have been collected from Bjurling, Skånes utrikessjöfart, and Carlquist, Svensk uppslagsbok, 863. The following coinage subdivisions existed: one mark örtug equalled eight öre örtug; one daler kopparmynt (dkm) equalled

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Appendices  |  239

four mark kopparmynt or thirty-two öre kopparmynt; one daler silvermynt (dsm) equalled four mark silvermynt or thirty-two öre silvermynt. Between 1624 and 1632 one dsm was equal to one dkm. During the periods 1633-1643, 1644-1664 and 1665-1776 this changed to two, two and a half and three dkm respectively. The final alteration of the currency system took place in 1776 when the riksdaler specie (rds) was introduced. The rds consisted of fourtyeight skillingar and was equal to six dsm or eighteen dkm. Jörberg, A history of prices in Sweden, has taken eighteen dkm to equal one krona.

Poland For Gdansk the wages presented in Allen, European wages and prices, were used. Grain prices were collected from Pelc, Ceny w Gdan´sku, 47-50, and Furtak, Ceny w Gdan´sku, 121-124.

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Denmark Copenhagen wages were collected from Nielsen, ‘Dänische Preise’, 346-347, and Thestrup, The standard of living, 79-97, 276-278. The former refers to day labourers’ wages. The latter refers to workers in sand- and gravel-pits, road mending, drain clearing, garden work, etc. The data come from municipal treasury ledgers that recorded the daily wages of workmen paid wholly in cash by the Copenhagen magistrates. Two wage rates tended to be used: the summer and winter wage. Instead of working with Thestrup’s average wage series, I have collected the summer wages only. Average summer wages of labourers in Ribe were based on Thestrup, Mark og skilling, 20-33. Post-1730 Copenhagen grain prices – Danish rye and Lolland wheat as quoted in Copenhagen – were taken from Friis and Glamann, Prices and wages, 208-224. When available, average monthly prices were based on the minimum and maximum prices as given for each month. The average yearly price was subsequently based on these averages. Missing annual rye prices were estimated through a linear regression with kapitelstakser prices for Sjaelland as given in ‘Kapitelstakser’, 2-5. The pre-1730 grain prices were based on a similar procedure. Rye prices for Ribe – or rather Ribe Amt – were taken from ‘Kapitelstakser’, 40-43. According to Friis and Glamann, Prices and wages, 137-139, the grain barrel (tønde) contained 139.1 litres. The silver content of the skilling was based on Christiansen, Value of the Danish skilling.



In constructing this overview the help of professor Söderberg and Dr. Edvinsson was crucial.

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240  |  The economic consequences of the Dutch

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Germany As the basis of the Hamburg wage series were the daily wages paid to unskilled labourers by the St. Georg Hospital as collected in Gerhard and Engel, Ein Kompendium, 302-303. This series covered the period 1510-1611. During this period the daily wages paid to other labourers – unskilled female labourers (pages 300-301), unskilled labourers at the St. Hiob Hospital (pages 304306), dyke workers (pages 307-308), sawyers (309-310) and shipbuilders (pages 311-313) – moved in a similar way. After 1611 the wages paid to unskilled workers by the St. Hiob Hospital were used. Only a few data entries were available until this series again provided more substantial evidence from 1651 onwards. Between the mid-seventeenth century and 1800, however, there were large differences between low wages (0.7-0.8 Mark lübisch) and high wages (c. 1.2 Mark lübisch and c. 1.5 Mark lübisch). Gerhard and Engel comment, though, that for particularly hard or dirty work, wages were sometimes more than twice as high. This suggests that the 0.7-0.8 Mark lübisch range was the ordinary rate and 1.2 Mark lübisch and 1.5 Mark lübisch the exceptions. The series suggests that this common level was reached by 1650 and remained stable until at least the 1760s and maybe even the end of the eighteenth century. This is supported by the fact that shipbuilders’ wages also increased until the mid-seventeenth century and then stabilised. When available, the post-1650 outliers were therefore corrected to the average low-wage level (i.e. 0.8 Mark lübisch) found for the unskilled workers paid by the St. Hiob Hospital. The ‘normal’ wage rates were retained. Rye prices were collected from Gerhard and Engel, Ein Kompendium, 110113. Data from Gerhard and Engel, Ein Kompendium, 108-109, and Gerhard and Kaufhold, Preise im vor- und frühindustriellen Deutschland, 170-171, were used to fill pre-1612 and post-1735 gaps in the data through linear regressions. The remaining pre-1626 gaps were filled using oat prices given in Gerhard and Engel, Ein Kompendium, 106-107. Wheat prices for the period 17361800 were given in Gerhard and Kaufhold, Preise im vor- und frühindustriellen Deutschland, 223-224. According to Gerhard and Engel, Ein Kompendium, 317, the Last contained 3,161 litres and consisted of three Wispel of about 1,054 litres each. Information on the metallic content of the Hamburg currency – the Mark lübisch – is given by Sprenger, Das Geld der Deutschen, 58, 67, 131, 146, 165. According to Sprenger, 34 Mark lübisch were taken out of the Mark Cologne after 1725. As the Mark Cologne contained 234 grams of fine silver, the silver content of the Mark lübisch was 6.88 grams. Information on wages, currency, grain prices and grain measures in Emden has been published in Aden, Entwicklung und Wechsellagen, 168-170, 185, 189,

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Appendices  |  241

192-193. Aden converted prices and wages into the Reichsmark, which contained 0.358 grams of gold. Given the 1:15½ ratio to silver, which according to Aden applied to his data, 5.56 grams of silver went into one Reichsmark. Prices and wages for Leipzig and Augsburg were collected from Allen, European wages and prices, and Allen and Unger, Database.

France

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Prices and wages for Strasbourg were collected from Allen, European wages and prices, and Allen and Unger, Database.

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Appendix III Constructing welfare ratios for Copenhagen and Stockholm

When calculating the welfare ratios, the approach of Allen, ‘The great divergence’, was followed.

Copenhagen

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The prices in Friis and Glamann, Prices and wages, were collected from price currents reporting Copenhagen market prices and are generally on the per month level. Where multiple entries were available I first aggregated at the per month level before calculating the annual average price. Thestrup, The standard of living, provides prices collected from ledgers of the Navy Board and Copenhagen City Council. Where necessary, missing values were linearly interpolated. Since wages and the currency system have already been discussed in Appendix II, the following will be restricted to goods prices and measures. Bread. Friis and Glamann, Prices and wages, 143-158. As in many other towns, the City Council of Copenhagen regulated the price of bread. The price of coarse rye bread was quoted in skilling per pund (0.496 kg). Annual consumption: 182 kg. Beans and peas. Friis and Glamann, Prices and wages, 225-242. Prices of peas were quoted in skilling per tønde (139.1 litres). Annual consumption: 52 litres. Meat. Friis and Glamann, Prices and wages, 172-191. The City Council of Copenhagen regulated the price of meat. The price of beef was quoted in skilling per pund (0.496 kg). Annual consumption: 26 kg.



When replicating Allen’s procedure, it was found that instead of multiplying by 3.15 (three family members and rent), the baskets of consumables were actually only multiplied by 3. Obviously this only resulted in a difference in levels and not in the overall trend. In order to keep the available results comparable, it was decided to multiply by 3 here as well. After consultation Allen has made the correct figures available. See Allen, Data great divergence. In order to allow for a full comparison, the welfare ratios for Copenhagen and Stockholm will be made available in the 3x and 3.15x formats by Van Bochove, Welfare ratios.  See Friis and Glamann, Prices and wages, 195-203, for a description of the data.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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Appendices  |  243

Butter. Friis and Glamann, Prices and wages, 261-278. The price of Funen butter was quoted in skilling per tønde (131.39 litres). Annual consumption: 5.2 kg. In order to convert the volume to a weight, the density of butter was assumed to be 0.9 kg per litre. Cheese. Friis and Glamann, Prices and wages, 279-296. The price of Funen cheese was quoted in skilling per skippund (158.72 kg). Annual consumption: 5.2 kg. Eggs. Friis and Glamann, Prices and wages, 279-296. The price of eggs was quoted in skilling per snes (20 pieces). Annual consumption: 52 pieces. Beer. Friis and Glamann, Prices and wages, 159-171. The City Council of Copenhagen regulated the price of beer. The authorities discerned between four types of beer. I have computed the average of the more common and less expensive types 3 and 4. Prices were quoted in skilling per tønde (131.39 litres). Annual consumption: 182 litres. Soap. Thestrup, The standard of living, 153-154. The price of green soap was quoted in skilling per otting (16.42 litres). Series were available for purchases by the Royal Navy and for the Copenhagen market. Levels were usually identical, so the oldest series (Royal Navy) was used as basis and Copenhagen market prices were used when data were lacking. Annual consumption: 2.6 kg. In order to convert the volume to a weight, the density of soap was assumed to be 1.0 kg per litre. Linen. Thestrup, The standard of living, 146-147. The price of sailcloth for seamen’s or artisan’s uniforms is quoted in skilling per roll of 52 alen (32.7 m) by 24 tommer (0.63 m). The series was extrapolated with the price series for white or bleached linen shirts for seamen or Christiansø prisoners (quoted in skilling per shirt). The Royal Navy purchased the goods. Annual consumption: 5 m. The linen Allen, ‘The great divergence’, used for England has a width of 0.857 m, so that the surface needed per year measured 4.29 m2 (see Beveridge, Prices and wages, 131-132, 143-145). As the Copenhagen roll measured 20.5 m2, one needed 0.21 rolls per year. Candles. Thestrup, The standard of living, 151. The price of tallow candles was quoted in skilling per lispund (7.94 kg). Purchases made by the Copenhagen City Magistrates. Annual consumption: 2.6 kg. Lamp oil. Thestrup, The standard of living, 150. The price of fish oil for lighting was quoted in skilling per pot (0.97 litres). Purchases made by the Royal Navy. Annual consumption: 2.6 litres. Fuel. Friis and Glamann, Prices and wages, 315-332. The price of charcoal was quoted in skilling per tønde (139.1 litres). One kilogram of charcoal contains 19,824 BTU. Annual consumption: 5.0 M BTU. Measures. Friis and Glamann, Prices and wages, 114-140, and Thestrup, The standard of living, 124.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

244  |  The economic consequences of the Dutch

Stockholm

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Wages and currency have already been discussed in Appendix II, so the following will be restricted to goods prices and measures. The data come from various sources. Bread. The nominal bread prices (1732-1800, n=33) were made available by professor Söderberg. A regression was estimated between the wage of an unskilled labourer, the price of a litre of rye and the price of a kilogram of bread (all prices expressed in grams of silver when estimating). R2 was 0.78 and F was 54.15. This relationship was used to determine bread prices for the missing years. Annual consumption: 182 kg. My results (-0.037 + 1.282 x grain + 0.065 x wage) do not differ much from the relationship estimated by Allen, ‘The great divergence’, 418 (0.063 + 1.226 x grain + 0.031 x wage +/- town dummy). Beans and peas. As no data were available for Stockholm, the price of rye was used as substitute. Following the information provided by Allen, ‘The great divergence’, 418-421 – and not taking the non-grain ingredients of bread into account – a litre of rye contains 1,978 calories. As one litre of beans / peas contains fewer calories (1,125) than a litre of rye, one can consume 29.6 litres of rye instead of 52 litres of beans / peas in order to realise a similar calorific intake. Support for this procedure is provided by a comparison of the price of rye relative to the price of peas in Östergötland and Gästrikland, two regions relatively close to Stockholm. It was found that in both regions the price of rye and peas ran in close parallel. For rye prices, see Appendix II. Meat. Hansson, Såld spannmål av kyrkotionden, Table 51 b; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 84-85; Jörberg, A history of prices in Sweden, 301-304, 312-315. The best available meat data are pork prices. Data from both Söderberg and Jörberg was used to construct an eighteenth-century series. This series moved in a similar way to the beef series by Jörberg. The pork prices are thus representative of meat prices. I have then computed a linear regression using Baltic herring prices (in silver prices). In this way older pork prices could be calculated. The lispund in Söderberg contained 6.65 kg whereas Jörberg’s lispund contained 8.5 kg. Annual consumption: 26 kg. Herring prices were collected from Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 66-69, 84; and Jörberg, A history of prices in Sweden, 359-362. According to the first the tunna contained 122.5 litres, while the latter used 126 litres. There was an overlap with sill (cured herring) prices, so I have calculated the ratios at the beginning and end. It turned out that Baltic herring fetched on average 65% of the price of cured herring, so this relationship could be used to fill the 1720-1731 gap.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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Appendices  |  245

Butter. Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 62-65, 84-85; Jörberg, A history of prices in Sweden, 323-327. The lispund contained 6.65 kg in Jansson, Andersson Palm and Söderberg, Dagligt bröd, whereas Jörberg, A history of prices in Sweden, used 8.5 kg. Annual consumption: 5.2 kg. Cheese. Jörberg, A history of prices in Sweden, showed that in Östergötland during the eighteenth century butter was 1.89 times more expensive per identical weight unit than cheese. As the calorific intake of one kilogram of butter was 1.94 times higher than one kilogram of cheese, this seems a solid ratio to use in estimating cheese prices. Annual consumption: 5.2 kg. Eggs. Jörberg, A history of prices in Sweden, 290-293. I have calculated a correlation with Baltic herring and used the formula and the price of herring to predict egg prices (based on silver prices). Annual consumption: 52 pieces. Beer. Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 51-53, 58. Beer prices (given per tunna of 122.5 litres) were available only for the period 1539-1620. The relationship between beer, rye and unskilled wages (expressed in grams of silver) was determined and used to calculate post-1620 beer prices. R2 of 0.51 and F of 40.96. Annual consumption: 182 litres. Soap. No actual figures were available. Annual consumption: 2.6 kg. Söderberg, Prices in Stockholm, and data provided by professor Söderberg (1706-1800) were used as substitute (part of these data were based on Carlén, Staten som marknadens salt, 346). It was assumed that one litre of salt weighed one kilogram. When prices for all twelve goods were available (1602-1620 and 1706-1718; n=32), the ratio of salt vis-à-vis the ten other goods was determined (linen was not included, see below). This ratio could then be used to estimate the missing soap prices. Linen. Jansson, Andersson Palm and Söderberg, Dagligt bröd, 44, 57, 66-69. The price of cloth is quoted in aln, which measured 59 centimetres. With an annual consumption of 5 metres, 8.47 alns were needed per annum. When prices for all twelve goods were available (1602-1620 and 1706-1718; n=32), the ratio of cloth vis-à-vis the ten other goods was determined (soap was not included, see above). This ratio could then be used to estimate the missing cloth prices. Since these prices refer to cloth and not to linen, a conversion had to be made. Two small series of linen prices were available for the sixteenth century. Six of these prices were used to determine the relationship with cloth during the early seventeenth century (1552 both; 1572 both; 1588 one; 1589 one). I have determined the average rate of inflation for the non-grain products and used this rate to increase the price of linen. The ratio with cloth was then determined for 1602, 1603 and 1604.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

246  |  The economic consequences of the Dutch

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The average of the 18 resulting ratios was 4.1 and this value was used to reduce the available cloth prices. Candles. Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 62-65, 84-85; Jörberg, A history of prices in Sweden, 339-343. As no prices for candles were available, I have assumed that 1 kg of tallow corresponded to 1 kg of candles. The former assumed 6.65 kg per lispund and the latter 8.5 kg. Annual consumption: 2.6 kg. Lamp oil. Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 62-65, 84-85; Jörberg, A history of prices in Sweden, 339-343. As no prices for lamp oil were available, I have assumed that 1 kg of tallow corresponded to 1 litre of lamp oil. The former assumed 6.65 kg per lispund and the latter 8.5 kg. Annual consumption: 2.6 litres. Fuel. Söderberg, Prices in Stockholm; Jansson, Andersson Palm and Söderberg, Dagligt bröd, 70-73, 86-87; Jörberg, A history of prices in Sweden, 517-519. The price of firewood was quoted per famn (3,140 litres). Allen, ‘Was there a timber crisis’, 478, suggests that green and air-dried softwood contained 3,340 BTU and 3,672 BTU per litre respectively. Here the average of 3,506 BTU per litre was used, so that a total annual consumption of 5.0 M BTU required 1,426 litres or 0.45 famn per annum. Evidence on charcoal prices was also available for nearby Västmanland. I have calculated the average ratio of firewood and charcoal for the years 1732-1749 and have subsequently used this ratio in order to make the charcoal prices determine firewood prices. Measures. Söderberg, Prices in Stockholm, and Jörberg, A history of prices in Sweden, 86-95.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

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Appendices  |  247

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Appendix IV

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List of Dutch loans provided to the Danish Kings Year 1563

Creditor Antwerp and Amsterdam merchants

Debtor Amount Frederick II1 300,000400,000 dalers

Interest Period

Collateral

1564

Johan Fleming (Antwerp)

Frederick II 40,000 dalers

12%

Obligation of Lübeck & Rantzau family

1627

1643

Jacques de Christian IV 150,000 fl Mares and Co. (Amsterdam) G. & C. Marselis Christian IV

1646 1647 1649

G. Marselis Christian IV 40,000 fl Berns & Marselis Christian IV Amsterdam Frederick III 250,000 fl

1651

Frederick III1 500,000 fl

1 year

Confiscated goods of his uncle were to be returned. Reportedly not returned by 1672. Timber from They fitted out a Norway. Norwegian fleet of men-of-war.

8% 5%

1651 1653

Frederick III1 500,000 fl States of Holland Frederick III 525,000 fl 5%

1653/ 1654 1657

Berns & Marselis Frederick III

Comment The King approached William of Orange to act as his intermediary.

Capital sum and four interest terms turned into a new obligation in 1658.

10 years

South Ditmarschen Sound tolls Sound tolls

6%

Sound tolls

States of Holland Frederick III 600,000 fl 5%

6 years after Norwegian war with and Sound Sweden had tolls ended

In 1661 all interest payments were scheduled for 1663, but still open in 1666.

Still open in 1696.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

Appendices  |  249

Year 1658

1658

Creditor Debtor Amount Interest Period States of Holland Frederick III 400,000 fl 5% 4 years after redeeming 1657 loan Amsterdam Frederick III 300,000 fl 5% 5 years

1659 c. 1660

Amsterdam States General

1661

Marselis

1666

Samuel Sautijn (Amsterdam)

Frederick III 50,000 fl

6%

1666

States of Holland Frederick III 50,000 fl

5%

1666

Joachim Irgens (Amsterdam)

1690

Johan and Frans Christian V Marselis Private individu- Christian V als

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1690

Frederick III 47,500 fl 5% Frederick III1 1,000,000 5% fl Frederick III 131,250 fl 6%

12½% max.

1699 17002

Balde 856,914 fl Widow Jan Balde Frederick IV 1,500,000 fl 5%-6% and Son

1701 1723

States General Johanna van Breugel (Amsterdam) Anthonij Bierens (Amsterdam) Elisabeth Tiellens (Amsterdam)

Frederick IV 100,000 fl Crown 20,000 fl 3% Prince Crown Prince Crown Prince

40,000 fl

Nicolaes Groen (Amsterdam)

Crown Prince

1723 1723

1723

Comment Still open in 1696. Still open in 1696.

Glückstadt

1 year

Frederick III 250,000 fl

850,000 fl

Collateral Norwegian and Sound tolls Norwegian and Sound tolls

Monastery with farms and tithes near Trondheim Subsidies States General / Drammen & Norwegian tolls Norwegian and Sound tolls Estates in Norway

Norwegian tolls Life annuity Norwegian tolls / VOC shares Life annuity 4 years Norwegian and then tolls / Elsflet redemption toll / VOC within 12 shares years

Still open in 1696.

Still open in 1696. Loan cancelled by Christian V in 1680.

Could be redeemed after 6 years. Originally 5%, but increased to 6% in the margin of the document.

1 year

Jewellery

Redeemed 1726.

4½%

1 year

Jewellery

Redeemed 1731.

40,000 fl

4%

1 year

Jewellery

18,000 fl

4%

1 year

Jewellery

Redeemed 1724 (due to the death of the creditor). Redeemed 1726.

van, Bochove, Christiaan. economic consequences of the Dutch : Economic integration around the North-Sea, 1500-1800, Amsterdam University Press, 2008. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/wisc/detail.action?docID=770967. Created from wisc on 2024-03-01 04:08:57.

250  |  The economic consequences of the Dutch

Year 1735

Creditor Debtor Amount Interest Period Widow Jan Balde Christian VI 1,000,000 5% 2 years and Son fl and then redemption within 4 years 1757 Frederick V 13 years max. 1763/1764 Boas Frederick V 3,220,000 4% fl 17653 Clifford (later Frederick V 10,000,000 5%4 4 years Jacob Dull and fl and then Sons) redeeming 1/8th every year.