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Beginning in the nineteenth century, excavations in Iraq, Syria, and Iran have brought to light the remains of the civilizations that flourished in the ancient Near East in the third to first millennia BCE. Text are available in three ancient Near Eastern languages: Sumerian, Assyrian, and Babylonian. Ancient Mesopotamian societies were complex peasant societies: strongly stratified, state-building societies characterized by a comparatively high degree of urbanization. The environmental conditions determined to a large extent the economic activities. A two-sector paradigm of the Mesopotamian economy has been developed predominantly on the basis of evidence from the third millennium BCE. The model's most sustained challenges come from the documentation for long-distance (and domestic) trade that proves the existence of market-based and profit-oriented commerce supported by complex social and legal institutions, and from evidence dating to the first millennium BCE that shows a period of economic growth driven, inter alia, by increasing monetization and the market orientation of economic exchange.
With their legal personhood, permanent capital, transferable shares, separation of ownership and management, and limited liability, the Dutch and English colonial trading companies VOC and EIC are considered institutional breakthroughs. We analyze the VOC's business operations and financial policy and show that its novel corporate form owed less to foresight than to piecemeal engineering to remedy design flaws. The crucial feature of managerial limited liability was not, as previously thought, integral to that design, but emerged only after protracted experiments with various solutions to the company's financial bottlenecks. Legal form followed economic function, not the other way around.
The debate over the institutions that link economic growth to public finance tends to disregard the need for savings to finance growing public debt. In seventeenth-century Holland the structure, size, and issuing rates of the debt were determined by investors' preferences, wealth accumulation, and changing private investment opportunities. The growth of savings enabled the creation of a huge debt largely with short-term bills. Issuing rates dropped because savings outstripped private investment alternatives. In Holland, and probably elsewhere as well, credible commitment and efficient fiscal institutions were necessary, but not sufficient to create liquid secondary markets and low costs of capital.
Institutional investors such as insurance companies and mutual funds are a prominent feature of today's financial systems. To some extent they serve as a hallmark of modernity and as such Richard Sylla has included them in his list of six features of successful financial revolutions inaugurating economic leadership. Sylla did not specify his reasons for doing so, but we may summarize the importance of institutional investors as, on the one hand, providing access to the securities market for savers otherwise unable to enter it, and on the other hand as providing a ready demand for secure investments suited to fund long-term liabilities.
Institutional investors in themselves are an old phenomenon in Europe. Already by the late Middle Ages ecclesiastical institutions derived income from the land and houses which they owned. In several parts of early modern Europe revenue from real estate contributed to the funding of hospitals and orphanages. Investment in financial assets remained limited, however. Only in sophisticated financial markets, i.e., Venice, Genoa, and Amsterdam, did charities have portfolios with a considerable volume of public and private securities. Until the eighteenth century, when the first joint-stock insurance companies were created in London, there were no large insurance firms or pension funds either. Non-permanent syndicates of underwriters remained the norm throughout pre-modern Europe.
The article analyzes the evolution of the Amsterdam capital market as a consequence of Dutch overseas expansion and the introduction of transferable VOC shares. Offering investors prospects of speculative gains without serious loss of liquidity, these instruments created a booming secondary market offering a wide range of allied credit techniques. By 1609 this market had become sufficiently strong to dictate terms for new public debt issues. These findings show that, contrary to commonly held notions about the emergence of secondary markets, private finance took precedence over public finance in the Dutch Republic.
From about 1780, The Netherlands dropped back from a leading position in trade and banking to a rank more befitting its size, content to follow international developments rather than steering them. For long, this downgrading was hidden and softened by the riches accumulated during the Golden Age, which ensured Amsterdam a continuing position in international finance. The character and importance of that position changed irrevocably as well, however. In 1834 the government of the United States moved their European account from W. & J. Willink of Amsterdam to Rothschild in London (Chapman 1984, p. 21). From the end of the 1840s Hope & Co.'s unique hold over Russian government issues slipped (Platt 1984, pp. 70–2). Around 1850 several big German–Jewish bankers shut their Amsterdam branches, sealing the city's slide to second rank.
The adaptation to changed economic circumstances proved long and painful. Industrialisation and corporate joint-stock banking both came late in the nineteenth century, inspiring many observers to suggest a negative link between the two, blaming conservative bankers and wary investors for the prolonged economic decline. If that suggestion fails to stand up to scrutiny, it still leaves to be explained what actually happened in Dutch banking during the nineteenth century.
The themes dominating this period may be summed up as the evolution towards a national economy in tandem with a financial system centred on Amsterdam, and the slow emancipation of banking from trade and other activities. Only the convergence of these developments in the decade after 1860 created the opportunities for the first joint-stock banks. As an important proxy to the first two factors the currency vicissitudes will be treated first.
The study of the financial and monetary history of The Netherlands shows a vacuum between about 1965 and 1985. Silence ruled for almost 20 years after J.G. van Dillen, the most important historian of the financial history of the Dutch Republic, laid his pen aside and A.M. de Jong completed his history of the Nederlandsche Bank (the Dutch central bank). M.G. Buist's history of the banking house of Hope & Co. proved for long the only exception among Dutch scholarship. The field was left to British and American historians who conducted pioneering research into government finance in Holland in the sixteenth century (J.D. Tracy) and the Amsterdam capital market in the eighteenth century (A.C. Carter and J.C. Riley). However, new outlooks of Dutch origin arose in the slipstream of an international boom in monetary and financial history. W. Fritschy (1988), M. 't Hart (1989a), E.H.M. Dormans (1991), J. Barendregt (1993) and R. van der Voort (1994) obtained their doctorate on studies of government finance in the seventeenth to the twentieth centuries. The first volume of Joh. de Vries' history of the Nederlandsche Bank in the period 1914–48 appeared in 1989. In the meantime the discussion about monetary policy in the 1930s was revived by contributions of Den Bakker and Bochove 1988, Van Zanden 1988c and J.W. Drukker 1990. Finally, this period witnessed the start of research into the Bank of Amsterdam (P. Dehing in progress) and into Amsterdam banking during the nineteenth century (J. Jonker 1996b). The work in progress shows that these studies have provided important new insights into Dutch financial history. In short, in the range of a couple of years time a moribund specialism revived.
Over the last 25 years, financial history has travelled the familiar road towards specialisation. Rondo Cameron's twin path-breaking volumes used finance and banking to focus on details about the origins of modern economic growth (Cameron 1967, 1972). Since then, the focus seems to have turned, as financial history became more introspective. Monographs, and journals on as well as associations of financial history proliferated, but the subject itself fragmented further into specialisms with the broader questions of economic and political development receding into the background. As a result, the main topics of banking, public finance, and currency have become isolated from each other, each confined to separate textbooks or at best separate chapters, such as in Kindleberger's classic and courageous attempt at a synthesis (Kindleberger 1984).
In this book, we have attempted to bridge some of these faults by exploring the relationship between banking, currency and public finance in The Netherlands over a period of nearly five centuries. Our main aim was to show how since the mid sixteenth century the gradual evolution of very different regions into a single national state with a firmly integrated economy largely depended on progress in the financial sphere. The preceding chapters all demonstrate the importance of the links between the three ostensibly separate fields of banking, currency and public finance, bottlenecks in any one of them slowing down progress in all. Once a particular obstacle is out of the way, banking, currency and public finance mesh to produce a new phase of growth, only to be halted again by economic, political or technical constraints cropping up elsewhere.