Public Finance and Economic Growth: The Case of Holland in the Seventeenth Century

Abstract

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. he main reason for studying early modern public finance lies in its presumed function as foundation for modern economic growth. Proposed first by Peter Dickson in 1967, this idea emphasizes the importance of the switch from haphazard and expensive short-term borrowing by monarchs to a consolidated long-term debt under parliamentary control, more secure, traded on liquid secondary markets, and thus cheaper. 1 Following Dickson, Douglass C. North and Barry R. Weingast wrote a celebrated article highlighting the institutional

Philip Ii Against the Cortes and the Credit Freeze of 1575-1577

“… 5 The rolling over of short-term bills would become the dominant form of the public debt in 17 th -century Netherlands, as shown by Gelderblom and Jonker (2011a, 2011b). …”

Anglo-Dutch Premium Auctions in Eighteenth-Century Amsterdam

“…19 There is also direct source evidence from Utrecht, and the same mechanism was likely used in other cities as well (Van Bochove 2012). It seems that auctions were primarily used to sell off estates: the Amsterdam archive contains auction booklets mentioning the estate to which the securities belonged; the notarial deeds from the town of Utrecht similarly mention in many instances that the securities belonged to an estate.…”

“…18 Ricard (1722); Le Moine de l'Espine (1694-1801); Wegener Sleeswijk (2007). 19 It is clear from archival sources that auctions were adopted gradually for this purpose. Since they were initially used infrequently, it is difficult to determine decisively when they were first used to sell securities.…”

‘The whole art of war is reduced to money’: remittances, short-term credit and financial intermediation in Anglo-Dutch military finance, 1688–1713

“…To such criticisms that draw primarily on evidence on the functioning of markets for government debt and private investment in England itself, Oscar Gelderblom and Joost Jonker inter alia have added the example of Holland's public debt. Here, they argue, credible commitment developed gradually and from the ground up without a moment equivalent to the Glorious Revolution, and without a sudden major shift from short-term to long-term debt (Gelderblom and Jonker 2011; also see Tracy 1985; ’t Hart 1997, 2014, ch. 7; Fritschy 2003).…”