THE triangular slave trade did not last long.
Few ships followed the pattern in the late 18th Century. By then, the sugar trade in Cuba, Puerto Rico, Mexico, and other parts of the Caribbean was so important that London merchants engaged in it exclusively, sending their ships to the West Indies laden with trading goods and returning with sugar.
The Dutch slavers who brought their cargoes to the Indies in this period often had to return home or back to Africa empty.
For all the profits to be made, few Dutch settlers were attracted to the colonies, and except for South Africa, that remained the situation for as long as the Netherlands was a substantial force in opening the world to commerce.
At home, the Dutch economy thrived.
Immigrants fleeing from religious oppression elsewhere helped the Dutch create a major textile industry.
Sugar refining, brewing and distilling flourished in Rotterdam, while Amsterdam became a centre for diamond cutting, lens making and the production of mathematical and shipping instruments as well as maps and charts.
Amsterdam and several other Dutch cities became the publishing centres of Europe.
Books from there were sold openly where permitted and smuggled into the places where they were banned.
The Dutch grew to be a powerful force in banking as well, offering superior service sand highly competitive rates.
The Dutch East India Company floated a 12,6 million florin bond issue and merchants could borrow.
While the German and Italian bankers would often only lend for short periods, the Dutch were willing to buy and sell the long-term bonds, which borrowers preferred.
The Dutch had a lively securities market and, in addition, several important commodity markets.
The most sensational and famous of these was the market that sprang up to deal in tulip bulbs. The flowers had been introduced into Holland from Turkey and captured the fancy of the Dutch.
In 1630, there were markets for tulip bulbs in Amsterdam and Rotterdam and others appeared elsewhere later.
Eventually, every western European nation had at least one tulip market. Bulbs even became a form of currency.
By mid-1635, species such as the semper augustus, admiral liefken, and viceroy brought fortunes on the market.
The viceroy, at its peak, cost 2 500 florins on the Amsterdam market, at a time when a yoke of oxen could be purchased for 250 florin and a suit of clothes for 80.
The market collapsed in late 1635 and within a week, some of the bulbs were nearly worthless.
It took the Amsterdam market a generation to recover from the tulip craze, but new surges of expansion with dreams of wealth led to other obsessions.
The tulip mania was the first of the modern ‘bubbles’ that would mark Western civilisation from that time to the present.
Bubbles occur when wild and unrealistic speculations arise around some product or financial opportunity, during which time participants entertain visions of great wealth, achieved rapidly, through the purchase of the ‘right’ securities.
Such speculation has existed in all western European nations, as dreams of the wealth to be obtained from overseas spread to the middle classes.
Additionally, the persistent wars of the period drove monarchs to ever-greater recourse to loans than had earlier been the case.
In England, the financial difficulties of the Crown resulted in the formation of the Bank of England in 1694, which advanced funds in return for a charter; and three years later the grant of a monopoly on joint-stock banking in the kingdom.
The bank’s prestige was based in part on its becoming the repository for tax and loan receipts and its close relationship to the treasury.
A century later, Bank of England notes were the common tender for settling accounts, and the institution had become, for all intents and purposes, a central bank, providing England with greater financial stability than most other countries, adding significantly to its power.
The Dutch, too, had a central bank, the Bank of Amsterdam, which eased the financings by that country’s merchants and those of the government. Commercial interests and foreign governments trusted bills issued by the banks, since, theoretically, each note was wholly backed by gold available upon request.
The French lacked such an institution, which added to the difficulty of competing in a period of colonial rivalries and wars.
Into this breech appeared John Law, one of the earliest ‘bubble makers’, a financial genius and charlatan.
Law was a Scots financier, the son of a prominent goldsmith-banker.
He had been instructed in finance by Thomas Neale, master of the mint, who organised the first national lottery in 1694 and developed the paper currency for Scotland.
In 1695, Law was imprisoned for having murdered his mistress’ husband, but he escaped to the continent.
He landed in Amsterdam and then wandered from country to country, trying to interest rulers in supporting his plan for a central bank in their countries, in the process accumulating a fortune through speculation and by writing a treatise in which he argued for the creation of a paper currency that would expand the monetary base and create prosperity.
While Law was not the originator of reserve banking, which had existed even as early as the Hellenistic Age, he was one of its most successful practitioners.
He demonstrated to the financial community of his time the feasibility of such a form of banking and the power that came with the ability to expand the currency.
Law suspected that the Dutch bank was investing gold deposits at a profit, realising that so long as the investment public had confidence in the bank’s ability to repay deposits; they would use its paper as though it were gold and not demand redemption.
Law recognised that the true backing for a currency was trust in its purchasing power, and not any special virtue of the gold backing. He proposed the creation of an institution that at the same time would be a depository, a central bank and the prime investing medium for the nation.
It would be supported by the Crown, have prominent members, and be so respected that none would question the backing of its notes, thus enabling him to expand them at will.
In this way, the money supply of the country would be enlarged and the economy stimulated, but more importantly, Law would have at his disposal unlimited funds for investment!
Dr Michelina Andreucci is a Zimbabwean-Italian researcher, industrial design consultant and is a published author in her field. For comments E-mail: linamanucci@gmail.com.