PIONEERS OF CAPITALISM: The Netherlands 1000-1800

Maarten Prak and Jan Luiten van Zanden

ISBN 978-0-691-22987-4  Princeton £30

 Reviewed by Alan Dent

In the 17th century, what today we call Holland was the richest country in the world. The Netherlands, the authors contend, provides an interesting model for the study of how feudalism disappeared and capitalism took its place. They settle on the notion that productivity is defining. Whether Smithian or Marxian, economic growth is necessary for capitalism to flourish (Liz Truss might agree). Their introduction asks a series of questions: “Was there a major economic cycle in The Netherlands between 1300 and 1800…?”, “The new history of capitalism has… stressed the link with slavery…did slavery play such a role in the rise of capitalism in The Netherlands?” “Does the triumph of capitalism lead to the erosion of…values and norms…?” They point out that at the core of the debate about capitalism is the question of inequality, cite Piketty as an example but also refer to Sam Bowles’s The Moral Economy. He employs an example which may suggest that the “greed is good” culture might not be inevitable in a capitalist economy: UN diplomats have the right to park where they like. They get tickets but don’t have to pay the fine. Egyptians and Bulgarians get lots of tickets but the Dutch, British, Swedish and Canadian delegations have a clean record. Does this suggest finer moral discrimination is compatible with capitalism? Maybe it simply means these people are such fargone conformists they can’t park in a restricted area even when they’re given dispensation. Prak and van Zanden stress that Bowles interprets this behaviour as a function of the “civic cultures of many of the long-standing capitalist economies”, speculating that capitalism can co-exist with good citizenship or even be founded on it. However, Bowles is a neo-Marxist. They could have cited another of his examples: the imposition of fines on parents in a nursery in Haifa who were late in collecting their children. The parents didn’t arrive on time, they doubled the period of lateness. Bowles’s conclusion was that they had lost a sense of autonomous obligation and saw lateness as just another commodity they could buy. Far from upholding the notion that capitalism and good citizenship can go hand in hand, this suggests that when the market (price) rules, people lose the sense of moral duty (which is recognising the needs and rights of others) and see everything as a commodity (including other people).  

There is a hint here of what is bubbling away under the surface of this detailed and fascinating book: maybe the relatively benign conditions out of which capitalism grew in The Netherlands point to the possibility of a gentler, more humane, less divided, more morally cognizant capitalism. Prak and van Zanden are liberals. They are clearly not relaxed about gross inequality, but on the other hand they entertain an obscure admiration for some aspects of capitalism. The question is, does the evidence they muster uphold the argument they subtly advance?   

There was significant economic growth in The Netherlands from 1350. Some economists see a cyclical pattern: periods of growth followed by shrinkage. Elements of capitalism were responsible. Well-being is measured in many ways. During the period from 1350 to 1800 there were some negative signs, but also some positive: serfdom and slavery were rare, women didn’t suffer excessively, the common folk had some possibility to express themselves. Prak and van Zanden see a “remarkable picture”: the market economy had created a “broad growth in prosperity”. How did an exploitative, extractive system accomplish this. The subsequent seven chapters attempt to solve the conundrum.  

Yet is there a conundrum? Broadly-based prosperity can co-exist with desperate poverty, as it does in most countries of today’s Europe and in the U.S. It can also be compatible with relatively liberal civil institutions but concentration of power. Taking the view that if capitalism can provide broad prosperity, it’s a success, is a very low requirement. It dismisses the essential question: why is the relation between employer and employee necessary? What evidence is there that co-operative relations are less efficient? The relation between employer and employee is one of power. What is its basis? Simply that employers have the resources. What would we say to the notion that because men have the resources, they should have power over women? Wouldn’t that be a moral outrage? Prak and van Zenden’s conundrum arises from their contention that because early capitalism in The Netherlands didn’t drive the mass of people into destitution, it defies the critics who focus on inequality.  

People trusted in markets. Interest rates are a good guide. Interest rates were low in The Netherlands in the fourteenth and fifteenth century. Financial institutions were strong. Property rights were well-established. Farmers had a fair degree of autonomy. Voila. More evidence for the positive effects of markets. Are markets characteristic of capitalism? If all goods and services were produced co-operatively, would there be no market? Markets, as Adam Smith pointed out, require at least some degree of division of labour: if people produce principally for their own needs, they don’t have much surplus and they don’t produce high levels of one thing. However, what is produced by co-operatives can be exchanged in a market just as easily as what is produced by a capitalist business. It isn’t markets which characterise capitalism but the use of State power in defence of property, even if that property is relatively widely distributed. Capitalism isn’t and has never been a system of “free markets”. It has always been rigged in the interest of employers and investors. It relies on the State to do the rigging. The authors effectively acknowledge this:  

“City councils, typically dominated by merchants and entrepreneurs, were sensitive to the interests of business and pursued probusiness policies…” 

If markets did the work alone, why would City councils have to be biased in favour of capitalists? Markets have a more or less mystical significance in capitalist apologetics. They are supposed to be “free”, but where is the advance capitalist society with a free market in labour? All States have heavy-handed legislation to prevent labour using the market to get the best price, which is what markets are supposed to be about. Capitalist are great advocates of markets until they threaten their wealth, then they call on the State to shut them down.  

Prak and van Zanden evoke what they call “a coordinated market economy”. What they mean  is that “urban governments” ie the State “organised” certain aspects of the economy and society, education and health for example. There’s a contradiction between the coordination and the market. A market is governed by price but when the State provides education it’s recognising an arena in which the price mechanism doesn’t work. J.K.Galbraith used to argue that there wasn’t, nor had there ever been, a society where, in and through the operation of the market alone people were housed, educated, their health looked after, they were given security in old age, their streets were lit, they had roads to drive on, trains to travel on etc. The arena in which the price mechanism fails is vast. In fact, so extensive that without some other form of social provision, the entire system would collapse. A genuine free market economy wouldn’t last ten minutes.  

In 1609 an ordinance was passed which effectively nationalised the banking system. The request to do so came from the merchants, anxious that speculation might throw the whole system into chaos. You couldn’t have a clearer example of capitalists needing the State.  

The book gets really interesting when it looks at how Dutch capitalism behaved abroad. The authors recognise that State restrictions were imposed on domestic capitalism, but once the Dutch East India Co was established in 1602 the gloves were off. The Dutch behaved like standard colonisers.They enslaved, they used concubinage and they threw in the sea any idea of a free market. The Banda genocide of 1621 was an appalling example of conquest, based on racism in pursuit of lucre. The Dutch insisted the Bandanese trade only with them. The people of the islands could get better prices from the English or the Javanese. For their desire to trade to their advantage, they were slaughtered. The Dutch commanders thought it necessary “to populate it (Banda) with other people.” The authors don’t conceal any of this, but it doesn’t seriously disrupt their underlying suggestion that a benign form of capitalism might be possible.  

They discuss varieties of the system, for example “coordinated market economies” versus “liberal market economies” ie Germany on the one hand the UK on the other. The former, they say is more stable, the latter more innovative. Yet surely this misses the points: employment is a moral outrage and the State is always intrusive and often brutal.  

The “inequality possibility frontier” is part of the current economic literature. It means that in rich countries there is more for the few to cream off  and so greater leeway for inequality than in poor countries. The authors recognise that capitalism has entailed significant inequality. In 1722 in Leiden 92% of households had no taxable income. Recall that in the previous century Holland was the richest country in the world.  

In their conclusion the authors argue that distributing the rewards of “growth” broadly gives people an “incentive”; but how is growth arrived at? By creating gig jobs, by exploiting the resources of poor countries, by fuelling global heating, by switching emphasis from public services to profit-seeking, maybe even by the growth of internet porn? Prak and van Zanden don’t force their argument. They are reserved and suggestive, yet the drift of the book is that the evolution of Dutch capitalism may point to a way forward. The problem is that their evidence, excellently marshalled, shows that capitalism was inevitably colonial, that it made use of slavery, that it has driven millions into poverty and been responsible for colossal violence. Joseph Conrad, whose self-conscious politics were conservative, explored in his fiction  the human cost of making the pursuit of material wealth the essence of life and concluded it’s not a pretty thing. Capitalism is not a pretty thing. That there are more or less benign versions is beyond doubt, but what is their in our nature which justifies the existence of either employment or the State?