Financial history of the Dutch Republic

Overview

The financial history of the Dutch Republic involves the interrelated development of financial institutions in the Dutch Republic. The rapid economic development of the country after the Dutch Revolt in the years 1585–1620 accompanied by an equally rapid accumulation of a large fund of savings, created the need to invest those savings profitably. The Dutch financial sector, both in its public and private components, came to provide a wide range of modern investment products beside the possibility of (re-)investment in trade and industry, and in infrastructure projects. Such products were the public bonds, floated by the Dutch governments on a national, provincial, and municipal level; acceptance credit and commission trade; marine and other insurance products; and shares of publicly traded companies like the Dutch East India Company (VOC), and their derivatives. Institutions like the Amsterdam Stock Exchange, the Bank of Amsterdam, and the merchant bankers helped to mediate this investment. In the course of time the invested capital stock generated its own income stream that (because of the high propensity to save of the Dutch capitalists) caused the capital stock to assume enormous proportions. As by the end of the 17th century structural problems in the Dutch economy precluded profitable investment of this capital in domestic Dutch sectors, the stream of investments was redirected more and more to investment abroad, both in sovereign debt and foreign stocks, bonds and infrastructure. The Netherlands came to dominate the international capital market up to the crises of the end of the 18th century that caused the demise of the Dutch Republic.

Introduction

To fully understand the peculiarities of the history of the system of public finance, and that of the closely related system of private (international) finance and banking of the Dutch Republic, one has to view it in the context of the general history of the Netherlands and of its institutions, and of the general Economic History of the Netherlands (1500–1815). Those general histories differ in an important way from those of centralized Western European monarchies, like Spain, France, England, Denmark and Sweden in the early modern era. The Netherlands were highly decentralized from their origins in the Habsburg Netherlands in the late 15th century, and (other than the monarchies just mentioned) successfully resisted attempts to bring them together under the centralized authority of a modern state. Indeed, the Dutch Revolt that gave rise to the Republic of the United Netherlands, effectively resulted from resistance against attempts by the representatives of king Philip II of Spain, the Habsburg ruler of the country, to institute such a centralized state and a centralized system of public finance. Where in other instances the modern fiscal system resulted from, and was made subservient to, the interests of a centralizing monarchical state, in the Dutch instance the emerging fiscal system was the basis of, and was mobilized in the interests of the defense of, a stubbornly decentralised political entity. Ironically, the Habsburg rulers themselves pushed through the fiscal reforms that gave the rebellious provinces the wherewithal to resist the power of the sovereign. Emperor Charles V needed to increase the borrowing capacity of his government to finance his many military adventures. To that end it was necessary to put in place a number of fiscal reforms that would ensure that the public debt could be adequately serviced (thereby increasing the creditworthiness of his government). In 1542 the president of the Habsburg Council of State, Lodewijk van Schoor, proposed the levy of a number of taxes throughout the Habsburg Netherlands: a Tenth Penny (10 percent tax) on the income from real property and private loans, and excise taxes on beer, wine, and woollen cloth. These permanent taxes, collected by the individual provinces, would enable the provinces to pay enlarged subsidies to the central government, and (by issuing bonds secured by the revenue of these taxes) finance extraordinary levies (beden in old Dutch) in time of war. Other than expected, these reforms strengthened the position of the provinces, especially Holland, because as a condition of agreeing to the reform the States of Holland demanded and got total control of the disbursement of the taxes. Holland was now able to establish credit of its own, as the province was able to retire bond loans previously placed under compulsion as enforced loans. By this it demonstrated to potential creditors it was worthy of trust. This brought a market for voluntary credit into being that previously did not exist. This enabled Holland, and other provinces, to float bonds at a reasonable interest rate in a large pool of voluntary investors. The central government did not enjoy this good credit. On the contrary, its financing needs increased tremendously after the accession of Philip II, and this led to the crisis that caused the Revolt. The new Regent Fernando Álvarez de Toledo, 3rd Duke of Alba tried to institute new taxes to finance the cost of suppression of public disturbances after the Iconoclastic Fury of 1566 without going through proper constitutional channels. This brought about a general revolt in the Netherlands, particularly in the northern provinces. Those were able to withstand the onslaught of the royalist forces militarily, because of the fiscal basis they had built in previous years. Of course, they now withheld the subsidies to the central government their taxes were supposed to finance. That central government was therefore forced to finance the war by transfers from other Habsburg lands, especially Spain itself. This led to an enormous increase in the size of the Spanish public debt, which that country was ultimately unable to sustain, and hence to the need to accept Dutch independence in 1648. As explained in the general article on the economic history of the Netherlands, the political revolt soon engendered an economic revolution also, partly related to political events (like the rise of the Dutch East India Company and its West-Indies colleague), in other respects unrelated (like the revolutions in shipping, fisheries, and industry, that seem to be more due to technological innovations). This economic revolution was partly the cause of, and partly helped along further, by a number of fiscal and financial innovations that helped the Dutch economy make the transition to "modernity" in the early 17th century.

Public finance

The "constitution" of the new Republic, the Union-of-Utrecht treaty of 1579, tried to lay the basis of a revolutionary new fiscal system. It put in place a rudimentary confederal budget system that charged the Raad van State (Council of State) with drafting an annual Staat van Oorlog (war budget). This budget was presented in a "General Petition" to the States-General for (unanimous) approval. The treaty next required that the tax revenues for the financing of this budget would be levied "...equally in all united provinces, and at the same rate.". Furthermore, it prohibited internal tariffs and other taxes discriminating against residents of other provinces. Alas, these two latter provisions were never implemented. Instead, the provinces continued the practice under the Habsburg rulers that the provinces paid a fixed quotum (the repartitie) of the budget. Holland's contribution was the norm from which the contributions of other provinces were derived. After some changes the quota were fixed in 1616 as follows (to remain unchanged till 1792): Friesland one-fifth of Holland's share; Zeeland (after some diligent bargaining) 16 percent; Utrecht and Groningen one-tenth each; Gelderland 9.6 percent; Overijssel 6.1 percent; and Drenthe (though not represented in the States-General) 1 percent. The States-General had only two direct sources of income: it taxed the Generality Lands directly, and the five Admiralties set up under its authority, financed their activities nominally from the Convooien en Licenten levied on trade. Otherwise, the provinces determined themselves how they would collect the revenues to finance their repartitie. Within the provinces there were other quota systems to determine the contributions of the cities and of the countryside. In Holland, the city of Amsterdam was by far the largest contributor (though this was different from Habsburg times, when Delft made the relatively largest contribution), which explained the influence that city wielded, even at the national level. This system remained in place throughout the life of the Republic. Simon van Slingelandt made an attempt in 1716 to reform it by giving more power to the center. He convened the Groote Vergadering (a kind of constitutional convention) in that year, prompted by the fact that the Generality faced a liquidity crisis in 1715, when most provinces fell into arrears on their contributions. However, this august body rejected all reform proposals, opting instead for "muddling through". Ten years later Van Slingelandt was made Grand Pensionary of Holland, but on condition that he not press for constitutional reforms. Except for a reshuffling of the provincial quota in 1792, a real reform of the system had to wait till after the demise of the Republic. The public debt was consolidated on a national level in 1798, and the system of taxation only unified in 1806.

Taxation

As Holland was the most important province, usually paying 58 percent of the total budget, it is probably useful to concentrate the discussion on this province (also because other provinces modeled themselves on the Holland system). It based its fiscal structure on the system inherited from the Habsburg era, mentioned above, but extended it in important respects. The most important source of revenue, collectively known as gemene middelen (common means), were a set of excise taxes on first necessities, especially on beer, wine, peat, grain, salt, and the use of market scales. These were essentially transaction taxes, as they were levied at a fixed rate, not ad valorem (the revenue stamps introduced later in the 17th century basically fall in the same category as they tax transactions in commerce). In the 1630s this type of tax accounted for two-thirds of Holland's revenue. It then amounted to about ten guilders per capita (while per capita income for most people may have been much lower than the average of about 150 guilders a year). These taxes were levied on the seller of the good, who presumably passed them on to the consumer. They were collected by tax farmers, who bought their farms at auction, at least until the Pachtersoproer in 1748 put a stop to this practice. In Holland the real abuses of the system, though perceived to be great, may not have been as serious as the French abuses of the tax farms in that country. This was, because the tax farmers were numerous, low-status, and politically subordinate to the city Regenten, for which they formed a convenient barrier against popular discontent. Because of this weak position the Dutch tax farmers may have been less able than their French colleagues to exploit their privileges. Though the excises were a heavy burden on the common man, at least in the first quarter of the 17th century, somewhat surprisingly this regressive taxation burden may have abated somewhat in later years. There were several factors for this. Many excises incorporated mitigating provisions, like exemptions and sliding scales, that reweighed their impact in the direction of higher-income people (like graduation of the beer tax according to quality; conversion of the grain and salt taxes to per-capita taxes on assumed consumption; a progressive tariff for the tax on household servants, and on weddings and burials, that may be seen as wealth taxes, as most people were exempt). Finally, the relative importance of these excises in total revenue declined in later years. It accounted for 83 percent of total revenue in 1650, but only 66 percent in 1790. The types of tax that were next in importance were the real and personal property taxes like the verponding, a kind of rates. This amounted to 8.5 percent (the Twelfth Penny) of the rental value of all real property. This tax, first introduced in 1584, was based on assessments of land described in registers that were not updated. To remedy the problems resulting therefrom a new survey in 1632 resulted in new registers, and at this time the tax was fixed at 20 percent of land rents and 8.5 percent of house rental values, all levied on the landlords. Whether they passed these on was determined by economic conditions, of course. Unfortunately, 1632 proved from hindsight to be a top year for property prices. As rents plunged after the middle of the century, the real burden of the verponding therefore increased sharply. Also, in the war years after 1672 extraordinary levies, up to three times a year, were often imposed, amounting to 100 percent of the normal verponding. Pressure for new assessments was therefore high, but in 1732, after a century, the registers were only revised for house rents. The loss of revenue was otherwise deemed to be unacceptable. Farmers had to wait for the lifting of the agricultural depression after 1740 for relief through higher incomes. Finally, direct taxes on income and wealth were the third major pillar of the tax system in Holland. Due to the difficulty of assessing incomes, at first the emphasis was put here on taxes on capital, like the inheritance tax, and a number of forced loans that amounted to taxes. Income taxes were attempted in 1622, and again in 1715, but they proved impracticable. In 1742 Holland tried to impose the personeel quotisatie (whose registers offer a useful source to the social historian), which remained in force for eleven years, before it was abandoned. This was a progressive income tax, levied on incomes over 600 guilders (the highest quintile) at a rate, ranging from 1.0 to 2.5 percent. Wealth taxes proved to be more feasible. The Hundredth and the Thousandth Penny were regularly levied on real and personal property (as distinguished from the income from property, like the verponding) from 1625. In the difficult years after 1672, when war required high repartities, extraordinary wealth taxes were imposed very frequently, amounting to a total levy of (theoretically) 14 percent of all real property, seigneurial rights, tithes, bonds, and personal objects of value. In 1674 Holland put this ad hoc taxation on a regular footing by founding a new register (the personele kohier). From then on the 100th and 200th penny could regularly be collected. Finally, a curious predecessor of a tax like the dividend tax was the levying after 1722 of the 100th and 200th penny on the income from provincial bonds, which then replaced the general wealth tax just mentioned. This withholding tax proved to be very convenient, but had the unintended consequence that the effective yield of Holland bonds (other bonds were not taxed) was commensurately lowered. Holland therefore had to pay a higher rate on its bonds, which more or less defeated the purpose. All these taxes imposed a considerable burden on the Dutch tax payer, compared to his contemporaries in neighboring countries. There were no exemptions for churchmen or aristocrats. The Republic had sufficient authority to have these burdens accepted by its citizens, but this was a function of the "bottom-up" implementation of the taxes. Municipal and provincial tax authorities possessed more legitimacy than central authorities, and this legitimacy was reinforced by the fact that the broad tax base enabled local authorities to tailor taxes to local circumstances. The taxation system thereby underpinned the federal structure of the Dutch state. Other than for other provinces, a reasonably accurate picture can be sketched of developments in revenue and tax burden in the province of Holland. In the two decades of the Revolt after 1568, Holland's revenues exploded in a tenfold increase compared to pre-Revolt years, proving that Dutchmen were not opposed to paying taxes per se (despite the fact that they had started a revolution about Alva's taxes). The revenue kept growing after 1588, rising threefold in the period till 1630. However, the real per-capita tax burden remained constant in the years up to 1670. This reflected the tremendous economic growth in the Golden Age, on the one hand, and a rapid expansion of the tax base, commensurate with this growth, on the other hand. As in the economy in general, there was a sharp break after 1672. Whereas the economy stagnated, expenditures in connection with the wars, and hence taxes too, rose. Taxes doubled by the 1690s, but nominal wages (as distinguished from real wages, which rose due to the general decline in price levels) remained constant. At the same time the tax base almost certainly shrank as a consequence of the economic decline. This resulted in a doubling of the per-capita tax burden. This development levelled off after the Peace of Utrecht in 1713, when the Republic entered a period of peace and neutrality (though there was a spike when it was dragged into the War of the Austrian Succession). However, it did not result in a reduction of the per-capita

tax burden up to the final crisis of the Republic and its economy after 1780. Then that tax burden again sharply increased. Presumably, the other provinces globally followed these developments, though at a distance, because of their different economic circumstances. Other than for Holland (for which more data are known) revenue figures for the Republic as a whole are available for 1716, when it amounted to 32.5 million guilders, and again for 1792 (when the repartitie-system was revised for the first time), when it came to 40.5 million (inflated) guilders. After 1795 the Batavian Republic collected regular revenue statistics. These figures allow the following observations: in 1790 the per-capita tax burden at the national level in the Republic was comparable to that in Great Britain, and twice that in France (which had just started a revolution about that tax burden). This reflected a rapid rise in tax burdens in both France and Great Britain during the 18th century in which both countries made up a large difference with the Republic (but also in income levels, of course). Extrapolating backward, the Dutch level of taxation in 1720 probably was double that of Britain. Dutch innovations like excises and stamp taxes were followed with a lag of a century in the larger countries. The stagnation of the growth in the Dutch per-capita tax burden during the 18th century (while the Republic's rivals made up their arrears) may reflect both a lack of political will on the part of the authorities to exact higher burdens, and economic limits to taxation. The latter hypothesis is indirectly supported by the fact that after 1672 the tax system became far less regressive than before. Apparently, the common man was spared a further increase of his tax burden. Henceforth, "the rich" were burdened more severely by efforts at direct taxation, than during the Golden Age. However, this applied more to people rich in land and (provincial) bonds, than to people investing in commerce and foreign bonds. Source of income was therefore very important. This also contributed to the peculiar developments around the public debt in the 18th century.

Public debt

Usually, taxation and borrowing are seen as alternative means of financing public expenditures, at least if they are available with equal ease. Borrowing is sometimes inevitable when a spike in expenditures would necessitate an unsupportable spike in taxation otherwise. This was the usual justification for taking on public debt in the days of the Habsburg Netherlands, when the province of Holland built up an enviable public credit. Alas, in the first years of the Revolt this credit evaporated and Holland (let alone the Republic) was forced to increase taxation very strongly (as we have seen), partly by resorting to forced loans (which at least offered the solace of paying interest and holding out the hope of ultimate redemption). Voluntary loans were only to be had from people related to government (like the Prince of Orange) and from the Office of Ecclesiastical Property, the institution that managed the expropriated real property of the Roman Catholic Church. That office was charged with continuing the charitable works of the Church foundations, which it could conveniently do by selling its choice properties and investing the proceeds in interest-bearing public bonds. At first the scarcity of funds available for public borrowing was no doubt due to pessimism about the prospects of the new state. However, soon a new reason of a more propitious nature was the explosive economic boom in trade of the 1590s and early 17th century, that required financing from private capital and offered far better returns than the measly 8.33 percent (12th penny) the state could pay. This competing demand for funds can be illustrated by the fact that most people voluntarily investing in public debt up to the Twelve Years' Truce (1609) were widows and orphans. Also the phenomenon of the emergence of a secondary market for forced loans, offered by some municipalities in Holland, which enabled merchants to free up their forced loans, and reinvest those in private ventures, points in this direction. With the Truce more normal times arrived. The borrowing requirement went to zero with the arrival of the temporary peace and this probably helped the transition to voluntary lending. After the Truce ended in 1621 expenditures for war again rose steeply, but this time the Republic, and in particular Holland, had no trouble borrowing on average 4 million guilders annually, which helped keep down the rise in taxation that might otherwise have been necessary. By 1640 confidence in Holland's public debt (and the supply of funds available for borrowing) had risen so much, that a refinancing of the outstanding debt with a much lower interest rate of 5 percent was possible (followed in 1665 by a conversion to 4 percent).

Provincial and municipal borrowers in these days issued three types of debt instrument:

Promissory notes (called Obligatiën), a form of short-term debt, in the form of bearer bonds, that were readily negotiable; Redeemable bonds (called losrenten) that paid an annual interest to the holder, whose name appeared in a public-debt ledger (not as convenient as bearer bonds, but the bonds were still readily negotiable) until the loan was paid off; Life annuities (called lijfrenten) that paid interest during the life of the buyer, or nominee, whereas the principal is extinguished at his or her death (this type of debt was therefore self-amortizing). Unlike other countries, where the markets for public debt were often mediated by bankers, in Holland the state dealt directly with prospective bondholders. The tax receivers doubled as registrars of the public debt. The receivers were also free to tailor bond offerings to local circumstances. They often issued many bonds of small coupon that were attractive to unsophisticated small savers, like craftsmen, and often women. This made for a kind of "popular capitalism", at least during the Golden Age of the 17th century, that often amazed foreign observers. Lijfrenten paid a higher rate of interest than losrenten, which made them rather popular, the more so, because Holland at first did not make the interest dependent on the age of the nominee. It took no less an intellect than that of Grand Pensionary Johan de Witt to figure out that this omission made lijfrenten too expensive. This contribution to actuarial science also helped bring down the Dutch debt service appreciably. In practice, however, by the middle of the 17th century the Dutch Republic enjoyed such good credit, that it was able to dispense with lijfrenten and finance its borrowing requirements with long-term redeemable bonds at rates that were equal to, or lower than, the lowest interest returns available in the private sector. In fact, redemption could often be postponed indefinitely, making such loans "interest-only". This enabled the Republic in practice to spend according to its needs without practical limit, greatly exceeding its short-term ability to tax. This greatly enhanced its politico-military power, as it was able to field mercenary armies equal in size to the armies of countries with much larger populations, like France and England. The positive side of a well-managed public debt, like the Dutch one, is that it expands the purchasing power of the state in a timely fashion, without putting undue burdens on the tax payer. However, there are prices to pay. One of those prices is an appreciable redistributive effect, when via the debt service money is channelled from a large proportion of the population (the tax payers) to a much smaller number of bondholders. In the beginning (thanks also to the forced character of the lending) this effect was limited by the broad distribution of debt-holders across the population. In the course of the 17th century, however, bondholding became more concentrated. One of the reasons for this was that new bonds were often financed by reinvesting retained interest by existing bondholders. This effect increased commensurately with the increase of the debt and the debt service. It was reinforced by the fact that bondholders were thrifty people (a tendency possibly explainable by the Ricardian equivalence-theorem, though people at the time were of course unaware of this theoretical underpinning). In the course of the final third of the 17th century, and especially of the 18th century, this concentration of the public debt in the hands of a few gave rise to the emergence of a rentier class that amassed an important proportion of total wealth in the Republic, thanks to this redistributive effect, and despite the often confiscatory levies on wealth of the 18th century described above. This development went hand in hand with the development of the public debt itself after 1672. During the second half of the Golden Age (especially the years 1650–1665) the borrowing requirements of commerce and the public sector fell short of the amount of savings supplied by the private sector. This may explain the boom in real estate of those years, that sometimes acquired a "bubble" character. However, after the beginning of the Franco-Dutch War of 1672 these savings were rechanneled to the public sector (explaining the collapse of the housing bubble at the same time). Nevertheless, the holders of this rapidly increasing public debt were still awash in cash, which explains the low interest rates in the years up to 1689. This availability of funds also helped finance the great expansion of the VOC (and of its debt) in these years. With the great conflicts that started with the Glorious Revolution of 1688 (financed with a bank loan that a consortium of Amsterdam bankers threw together in three days) these markets tightened appreciably, however. Holland was now forced to reintroduce the unprofitable lijfrenten, and to resort to gimmicks like lottery bonds to entice lenders to buy its bonds. As the supply of funds from redemptions and retained earnings now fell short of government demand, these new loans must have been partially financed by disinvestments in the commercial, industrial and agricultural sectors of the economy (admittedly depressed in these years). By 1713 Holland's debt had reached a total of 310 million guilders, and that of the Generality of the Republic of 68 million (illustrating the relative preponderance of Holland in the Republic's finances). The debt service of this debt amounted to 14 million guilders. This exceeded the ordinary tax revenues of Holland. Most of this debt was now concentrated in the hands of only a relatively few families, that not so coincidentally also had privileged access to political office. This conjuncture of factors (decision making in the hands of a political group that also owned the public debt, a debt that surmounted the ability of the economy to service it) explains in large part the "withdrawal" of the Republic as a Great Power after 1713. Once the reform proposals of Van Slingelandt, that might have provided a viable alternative by enhancing the financial capacity of the Dutch state, had been rejected by this conservative political class, there was simply no alternative to austerity in public finance, and dismantling the military power of the Republic (paying off the mercenaries and laying up the fleet). Due to adverse economic circumstances in the first decades of the 18th century even these austerity measures offered little solace in practice. The only effect was that at least the public debt did not grow during these years, but even this trend was reversed after the forced entry into the War of the Austrian Succession caused another spike in military outlays (unfortunately with little positive effect, in view of the disastrous outcome of this war for the Republic), and therefore a spike in the growth of the debt. The levelling-off of the growth of the debt in the years before 1740, and again after 1750, caused a curious dilemma for the Dutch rentiers: they kept accumulating capital from bond redemptions and retained bond earnings, due to an undiminished high average propensity to save (though their wealth allowed them to wallow in luxury at the same time). However, there were few attractive investment opportunities for this new capital in the domestic Dutch economy: as explained in the article on the economic history of the Netherlands, structural problems militated against expansion of the private sector, and the public debt hardly expanded (even decreased after 1750). This development gave undeniable discomfort to Dutch investors. It presented them with two unenviable alternatives: hoarding (which apparently happened on an appreciable scale, leading to a large increase in the amount of money in circulation, while the velocity of circulation dropped), or investing a

broad. The rentiers therefore switched on a major scale to foreign direct investment, especially in infrastructure in Great Britain (where the Industrial Revolution of that country was about to begin, preceded by an agricultural revolution that needed financing), and also in public debt in that country. The Republic in this way for the first time in history became an international capital market, especially geared to foreign sovereign debt in the second half of the 18th century. By 1780 the net value of Dutch foreign government lending exceeded 350 million guilders, about two-thirds of which British government debt. This brought annual foreign earnings of 16 million guilders. After 1780, other than one might expect in view of the crises following that year, this trend sharply increased. This can only be explained by wholesale disinvestment in the Dutch economy, and reinvestment in especially foreign sovereign debt. Foreign investment probably doubled to 20 million guilders annually. The result was that Dutch residents held foreign debt instruments exceeding an estimated value of a billion guilders in 1795 (though other estimates are more conservative, the lower ones are still in the 650 million range).

Merchant banks and the international capital market

The remarkable growth of Dutch involvement with the international capital market, especially in the second half of the 18th century, was mediated by what we now would call merchant banks. In Holland these grew out of merchant houses that shifted their capital first from financing their own trade and inventories to acceptance credit, and later branched out specifically into underwriting and public offerings of foreign government bonds (denominated in Dutch guilders) in the Dutch capital markets. In this respect the domestic and foreign bond markets differed appreciably, as the Dutch government dealt directly with Dutch investors (as we have seen above).

Dutch involvement with loans to foreign governments had been as old as the Republic. At first such loans were provided by banking houses (as was usual in early-modern Europe), with the guarantee of the States General, and often also subsidized by the Dutch government. An example is the loan of 400,000 Reichstalers to Gustavus Adolphus of Sweden around 1620 directly by the States General. When the king could not fulfill his obligations, the Amsterdam merchant Louis de Geer agreed to assume the payments in exchange for Swedish commercial concessions (iron and copper mines) to his firm. Similar arrangements between Dutch merchants and foreign governments occurred throughout the 17th century. The transition to more modern forms of international lending came after the Glorious Revolution of 1688. The new Dutch regime in England imported Dutch innovations in public finance to England, the most important of which was the funded public debt, in which certain revenues (of the also newly introduced excises after the Dutch model) were dedicated to the amortization and service of the public debt, while the responsibility for the English debt shifted from the monarch personally, to Parliament. The management of this debt was entrusted to the innovatory Bank of England in 1694.This in one fell swoop put the English public debt on the same footing of creditworthiness in the eyes of Dutch investors, as the Dutch one. In the following decades wealthy Dutch investors invested directly in British government bonds, and also in British joint-stock companies like that Bank of England, and the Honourable East India Company. This was facilitated as after 1723 such stock, and certain government bonds, were traded jointly on the London and Amsterdam Stock Exchanges. But this applied to a safely controlled ally like England. Other foreign governments were still deemed "too risky" and their loans required the guarantee, and often subsidy, of the States General, as before (which helped to tie allies to the Dutch cause in the wars against France). After 1713 there was no longer a motivation for the Dutch government to extend such guarantees. Foreign governments therefore had to enter the market on their own. This is where the merchant banks came in, around the middle of the 18th century, with their emmissiebedrijf or public-offering business. At first, this business was limited to British and Austrian loans. The banks would float guilder-denominated bonds on behalf of those (and later other) governments, and create a market for those bonds. This was done by specialist brokers (called entrepreneurs) who rounded up clients and steered them to the offerings. The banks were able to charge a hefty fee for this service. The rapid growth of foreign investment after 1780 (as seen above) coincided with a redirection of the investment to governments other than the British. Many Dutch investors liquidated their British portfolios after the Fourth Anglo-Dutch War (which immediately resulted in a rise in British interest rates) and reinvested in French, Spanish, Polish (an especially bad choice in view of the coming Partitions of Poland), and even American government loans. The appetite for such placements abated a little after the first defaults of foreign governments (like the French in 1793), but even under the Batavian Republic (which itself absorbed the bulk of available funds after 1795) investment in foreign funds did not fall-off completely. This may have been because Dutch investors did not always realize the riskiness of this type of investment. They were often badly served by the merchant banks, who had a vested interest in protecting their sovereign clients to

The Wisselbanken

International payments have always posed a problem in international trade. Though exchange rate risks were less in the era in which the intrinsic value of money was usually equal to the face value (at leas