God is a Capitalist

by Roger McKinney

  The single feature of the Dutch Republic that impresses historians most is the small country’s rapid rise to dominance of international trade and its longevity, almost a century and a half. Before the revolt, Antwerp ruled the economy of Western Europe. By 1590, Amsterdam had wrested control from the old city. Part of the explanation for the transfer of economic power resides in the migration of Protestant merchants from Antwerp after the city fell to the Spanish re-conquest of the southern part of the Netherlands. But the character of trade in Amsterdam differed greatly from that of Antwerp. De Vries wrote, “To put it baldly, the merchants who flocked to Amsterdam brought capital, expertise, and contacts with them, but they now used these assets differently than before, as they came into contact with new resources, institutions, and opportunities.”

  The two cities had important differences: 1) Amsterdam oriented itself to maritime trade, while Antwerp relied on overland trade; 2) Amsterdam practiced continuous and atomistic trade, while Antwerp retained much of the old forms of periodic fairs and the organization of merchants into privileged nations; 3) Amsterdam’s merchants actively combined shipping, trade and distribution, while Antwerp’s merchants passively traded in goods brought to them by others; 4) Antwerp depended on its relationship with the imperial power of the Habsburgs, while Amsterdam, enjoying no imperial benefactor, struck out on its own according to De Vries.

  How did the Dutch so quickly achieve their primacy in international trade? Certainly the money that accompanied immigrants fleeing Antwerp and Spain contributed a great deal to the capital stock necessary for such rapid growth, but for the most part the Northern Netherlanders lifted their economy by their own boot straps in the view of De Vries:

  But the chief explanation for the growing amounts of capital committed to inventories of trade goods is the profitability of trade conducted from the Republic. The reinvestment of major portions of these profits certainly accounted for most of the new funds expanding year by year the trading capital at the disposal of the Republic’s merchants...as it grew, the institutions of the commercial economy (the Bank, Beurs, notarial system, consular support, money supply) became more efficient; shipping services benefited from the major technological advances represented by the fluitschip and mechanized lumber sawing; and merchants became more specialized. Together, these institutional, technological, and organizational improvements reduced transaction costs further than even the bulk trade traditions of the pre-Revolt commercial system had managed to achieve….”

  In stark contrast to the Dutch practice of reinvesting profits in business, merchants in the rest of Europe carried on the ancient tradition of stashing their profits in land, purchasing titles of nobility and giving to the Church in hopes of buying forgiveness for their sins and entrance into heaven. Also, other nations retained the old guilds and government sanctioned monopolies. Dutch merchants initially tried to preserve their monopolies, but the sheer number of new merchants and businesses made it impossible to maintain them for long. As the Republic succumbed to competitive markets, they discovered that competition did not create chaos, as medieval wise men had warned, but sharpened skills, spawned innovations and improved productivity.

  Dutch merchants did not restrict their investments to just piling up inventories, either. They invested in every manner of domestic production, especially textiles, fishing and agriculture. These productivity-enhancing investments fueled the rapid rise and long-term dominance of trade by the Dutch by making it a leader in technology. For most of the seventeenth and eighteenth centuries, the nation led the world in total factor productivity, operating nearest to the technological frontier and doing the most to define that frontier according to De Vries. In the seventeenth century, Dutch entrepreneurs introduced innovations into the iron industry and increased their own production as well as that of iron rich Sweden. Sweden had been endowed with almost as much copper as iron. With Dutch capital and expertise, it became Europe’s largest supplier.

  The Dutch also reformed the shipbuilding industry. Between the beginning of the sixteenth century and the middle of the seventeenth, the Dutch fleet expanded by tenfold, making it the largest fleet in Europe and three times the size of the English fleet. To meet the demand for ships, the Dutch organized their shipyards along elementary mass production techniques using mechanical saws and hoists powered by windmills. They standardized parts and made them interchangeable, whereas previously, parts were custom made in the artisan mode. The Dutch imported most of the wood but produced the sailcloth and cordage locally. With the fluyt, or flying ship, a tanker created to carry bulk products such as grain and timber, the Dutch made the most significant contribution to ship design in centuries. Introduced at the end of the sixteenth century, it operated with smaller crews and reduced shipping costs dramatically.

  As Bauer and others have pointed out, a lack of natural resources has not barred nations from development and the Dutch were no exception. Having a shortage of coal and mineral ores, they imported what they needed, but mostly they relied on abundant supplies of peat and wind power at home. De Vries wrote,

  Industrial windmill technology experienced a veritable explosion of innovation, chiefly concentrated between 1591 (with the construction of the first mechanical lumber-sawing windmill…) and 1674 (with the introduction of the ‘Hollander’ to the paper-making windmills, whereby high-quality ‘white’ paper could be produced by the Zaan paper industry). In between these dates, craftsmen applied the principles of the windmill to the specific motion and striking action needed in pressing oilseeds, shelling kernels, beating hemp, crushing shells, fulling cloth, mixing mustard and paint, grinding tobacco for snuff, and other industrial processes.

  The Hollander, a pulverizing machine, could produce more pulp for paper than eight stamping mills. Dutch inventors introduced an array of pumps, steam-machines and cranes, and in “microscopical science, botany, anatomy and medicine, the Dutch Enlightenment may fairly be described as the instructor of Europe, including Britain,” according to Israel. The pendulum clock of the Dutch scientist Christian Huygens introduced an age of reliable timekeeping. Accurate watches were important to shipping because it enabled the calculations of lines of longitude for the first time. Sailors determined latitude by the positions of the sun and stars, but calculating longitude had to wait for the arrival of mechanical clocks. The Dutch tried to prevent the loss of their technological secret weapons by passing laws that prohibited their export, but they failed for the most part to prevent entrepreneurs from smuggling their wealth of knowledge to neighboring countries and enriching them as well.

  Society – wages, poverty, education and morality

  One would expect the migration of 100,000 to 150,000 people into the Dutch Republic, which barely reached a total population of two million at its peak, after the revolt would reduce wages for the working class, but just the opposite happened. Throughout its Golden Age, Dutch employers had to contend with wages that were often twice as high as those in the southern Netherlands or Germany. After 1590, workers in Republic alone out of all of the rest of Europe experienced wages that increased faster than the cost of living. This meant that the standard of living for workers, skilled and unskilled, improved in the Republic while workers elsewhere became poorer. Wages grew much faster than prices until 1660. Afterwards, wages remained static but prices fell, which produced the same effect as before – greater purchasing power and improving standards of living.

  In real terms, Dutch laborers earned roughly twice as much as those in England until the late eighteenth century. Unskilled workers saw their wages climb from 55 percent of skilled wages in 1570 to 75 percent in 1650. These real wage increases reduced inequality as well. “A labor force growing rapidly, attaining higher levels of productivity, and earning higher real wages – this is the appealing picture we have of the Dutch labor market from the Revolt to the mid-seventeenth century, and most intensely to 1620,” De Vries wrote.

  Funds for the relief of poverty rose substantially
in the decades after the revolt when the Republic appropriated the assets of the Catholic Church for charitable purposes. The Dutch opened or expanded schools, orphanages, hospitals, homes for the elderly, and workhouses for beggars and criminals. In other European countries, relief consisted mainly in periodic crisis intervention, such as the provision of bread in periods of famine. The deacon’s boards and municipal relief agencies of the Republic distributed bread, peat (for heating), and cash to the working poor as well as the cyclically and seasonally unemployed on an ongoing basis. In Amsterdam, as many as 12 percent of all households received temporary help during the winter when jobs were scarce according to De Vries. And 16 percent of the population of the small town of Graft received some kind of aid according to Philip S. Gorski in The Disciplinary Revolution: Calvinism and the Rise of the State in Early Modern Europe.

  The poor found qualifying for assistance easy and the Reformed deacons turned away few applicants. Residents of a town applied to the head of their ward who directed them to the appropriate church or public agency. After 1650, the Reformed deaconate required that applicants be professing members of the church for at least two years in order to receive assistance. Non-members could apply to municipal agencies for help. Expenditures from the Reformed deaconate rose from 40,000 guilders per year in 1600 to 500,000 guilders in the 1750’s at a time when De Vries calculated that a poor family needed a minimum of 200 guilders per year to live. Modern readers might assume that the increase was only nominal and most of it due to price inflation, but price inflation was very limited due to the fact that money was gold and silver and the Bank of Amsterdam kept credit expansion to a minimum. As mentioned above, prices after 1660 fell, which is typical of gold based economies. Adjusted for deflation, the 500,000 guilders would have represented much greater purchasing power than the nominal amount.

  Foreign visitors to the Dutch Republic, in Israel’s account, marveled at the system of poor relief and charitable institutions and “its superiority over what one then found in neighboring countries….” Sir William Temple wrote that a home for aged seaman he visited was “a retreat stor’d with all the eases and conveniences, that old-age is capable of feeling and enjoying, a fitting retirement for those who had spent their whole lives in the hardships and incommodities of the sea.” The resources spent and the orderly, well equipped, and efficient system of care for the elderly, sick and poor amazed visitors. Towns competed to build the most imposing orphanages, old people’s homes, hospitals and workhouses for the poor. The quality of a town’s hospital was considered a major test of the city’s standing and status. An English visitor described an institution for the mentally ill as “…so stately that one would take it to be the house of some lord.”

  The historian Philip Gorsky wrote that, “Comparatively speaking, the Dutch system of social provision seems to have been very extensive and quite well funded. Such at least was the impression of foreign visitors to the Netherlands, who often commented on the number of almshouses that they encountered during their travels and on the cleanliness of these institutions and the quality of the care they provided.”

  After the revolt, the northern states widened the education gap between themselves and the Catholic southern states, as well as the rest of Europe. Both sides emphasized teaching the people their religious beliefs, but while Catholics used primarily oral teaching and art, Protestants since Erasmus had insisted on the centrality of understanding the teachings of Christ and the Apostles through personal Bible study, which required the ability to read. So the States, town councils, and Protestant churches established the goal of making cheap, subsidized primary education available to most children and instilling in them the necessary reading, discipline and confessional attitudes.

  Schools instructed students in reading skills without charge to the parents, but if they wanted to learn to write or do arithmetic, they had to pay a small additional fee. In time, even that charge was dropped for the poorest children. The States gave the responsibility for licensing schools and appointing teachers to the town councils, or the nobility in rural areas, but to the churches they granted advisory roles concerning teachers and curriculum, and the burden of helping poor children with funds. As a result, by 1630, 57 percent of bridegrooms and 32 percent of brides could sign their names; by 1680, the figures had risen to 70 and 40 percent. In 1780, 87 percent of bridegrooms and 69 percent of brides could sign their names.

  While aimed at spreading the faith, the high level of literacy helped diffuse many kinds of technical knowledge, including military and naval drill, and increased opportunities for the poor to move up in society. It also enabled humble men such as sailors and bargemen to read political and religious pamphlets that had become popular campaign tools.

  It is clear that in the Dutch Republic literacy among both men and women attained a level, and a literacy-based culture developed to an extent, which was wholly exceptional in Europe and which did not become normative elsewhere until centuries later. When the great scholar, Scaliger, arrived from France in 1593, he was astonished to find that even servant girls could read.

  Education followed a different track in the southern States. The Jesuits took over the task of re-education and produced a new generation of Catholics as militant as the Protestants. While the Protestants in the north taught their children to read the Bible, the Jesuits produced a flood of devotional literature, art and architecture while the common people remained illiterate. The Jesuits, “inculcated a political and social outlook in the sons of the Catholic nobility and merchant class… hostile to toleration and the civic privileges and freedoms around them, an attitude militantly confessional and favourable to the new Catholic princely absolutism…” As a result, in 1843, 51 per cent of army recruits in Belgium were illiterate while only 26 per cent of recruits in the United Provinces could not read.

  Catholics tended to reject all innovations from the Dutch because they were Protestant and, unfortunately, that meant they rejected free markets as well. As a result, Catholic nations in Europe would remain poor and backward much longer than Protestant ones except for France which had abandoned the Church in favor of radical atheism and deism.

  The Dutch appeared to have reduced crime in their republic compared to neighboring countries, according to historian Philip Gorski:

  Without exception, contemporary observers agreed that the level of crime in the Northern Netherlands was exceptionally low. In reference to Amsterdam, one English traveler remarked that: “’Tis rare to hear of any Disorders committed here in the Night-time, notwithstanding the great number and variety of Inhabitants and Strangers.” A German traveler said much the same about Leiden, Holland’s second largest city and the seat of its best-known university. “In Leiden,” he claimed, “you can go out without a gun and leave your door unlocked, even If you will be away for days,” the implication being that this was not the case in German university towns.

  In contrast, John Locke found the level of crime in the south of France shocking. And the behavior of students in Paris was nothing like those of Leiden. Gorski quoted one traveler who wrote, “It is as dangerous at Madrid as at Lisbon...for a stranger to be abroad in the Streets in the Night-time. On the Contrary one may travel Day or Night in Holland, without fear of being robb’d or otherwise molested.” The northern Rhineland was “generally regarded as the most dangerous area in all of western Europe. In the eyes of these travelers, and diarists, then, the Dutch Republic appears as an island of order in a sea of violence,” according to Gorski.

  Gorski provides some limited statistics to back up the claims. Leiden had just one hundred people convicted of murder in the first quarter of the seventeenth century. Amsterdam held 6.6 murder trials per 100,000 people in 1500 and that declined to 0.5 in 1670. However, Stockholm convicted 20 per 100,000 in the mid-sixteenth century and 36 per 100,000 in the last of the sixteenth. The murder rate in Paris in 1643 stood at 75 for each 100,000 people with 14 murdered in a single day in 1643 in Gorski’s accounting.


  The Dutch excelled at another measure of morality, too, legitimate births. The rate of out-of-wedlock marriages in Holland remained below 1 percent until the late eighteenth century when it rose to 2 percent. In Rotterdam and Maasluis, the rate of illegitimate births reached 3 percent around 1770. But in Paris, 8 percent of children were born to unwed parents in the 1710s and 25 percent in the 1770s. The rate rose from 3 percent to 10 percent in Nantes during the same period. “Moreover, the actual number of out-of-wedlock births was probably around twice as high as these figures suggest because illegitimate children in France were abandoned at about the same rates at which they were baptized, and illegitimacy was a common motive for abandonment,” according to Gorski.

  Christianity’s contributions

  Chapter 2 introduced Schoeck’s explanation that the rise of capitalism in Western Europe depended upon Christianity’s suppression of envy, especially in the admonition to love your neighbor as yourself. Loving your neighbor makes it difficult to envy him because of his accomplishments or success. But the admonition was over 1,500 years old when the Dutch Republic earned its freedom from Spain. Why had the command not produced capitalism in other Christian nations over such a long period of time? The answer lies in Christianity’s unique contribution – individualism.

  Schoeck demonstrated that individualism rarely exists in traditional cultures. Hofstede added empirical evidence that individualism is rare in poor countries and common in rich ones. Throughout time and across geography most cultures have suppressed those who would stand out in the group. Identity and rights came from the group. Constant, Stark and Siedentop show that the Greeks and Romans had no concept equivalent to the modern Western idea of Christian individualism. The accent for Plato and other philosophers fell on the needs of the city, not the individual, according to Rodney Stark in Victory of Reason: