Persistent but not consistent: The growth of national income in Holland 1347–1807

Abstract

In this paper we construct a detailed dataset of the national accounts of Holland (1347–1807). Using this dataset, we demonstrate that this economy was characterized by persistent economic growth caused by, depending on the period, structural change (share of industry and services in the economy increases), technological development, and factor substitution. During the entire period GDP per capita increased by on average 0.19% per year. This persistent growth, however, was highly unstable due largely to the importance of international services in the economy.

Introduction

The debate about the character of economic growth before the Industrial Revolution of the late eighteenth century has gone through a number of stages. In the 1960s and 1970s the early modern economy of Europe was considered to be basically stagnant, a view that was most clearly expressed by Wilhelm Abel (Abel, 1966) and by the representatives of the French Annales school (e.g. Le Roy Ladurie, 1974). In the 1980s and 1990s this picture came under attack from several sides. Economic historians of the early modern period began to point out that the industrialization of the late eighteenth and early nineteenth centuries was made possible by structural changes that took place during preceding centuries. The development of urbanization and international trade networks (e.g. De Vries, 1984), agricultural productivity (e.g. de Vries, 1974, Hoffman, 1996), proto-industry (e.g. Mendels, 1972), national patterns of specialization (e.g. Kussmail, 1990) and labor markets (e.g. Lucassen, 1987), the ‘consumer revolution’ and the ‘industrious revolution’ (e.g. De Vries, 1994), all demonstrated that this was a dynamic period, when the basis was laid for the industrialization of Western Europe after c. 1780. This ‘revolt of the early modernists’, as Jan de Vries (1994, p. 253) has called it, has resulted in a much more optimistic interpretation of economic growth during the centuries before the Industrial Revolution.² In their book on ‘The First Modern Economy. Success, Failure, and Perseverance of the Dutch Economy, 1500–1815’, Jan de Vries and Ad van der Woude have carried this ‘revolt of the early modernists’ to its logical conclusion. Their thesis is not only that The Netherlands in this period can be characterized as ‘the first modern economy’, but also that it went through a process (or rather a cycle) of ‘modern economic growth’ between 1500 and 1815 (De Vries and Van der Woude, 1997, p. 721).

This re-assessment of the early modern period has not gone unchallenged, however. The old orthodoxy that the pre 1800 world was basically a Malthusian one in which the welfare of the population was stagnant in the long run, has returned to the scene with the appearance of Greg Clark's (2007) 'A Farewell to Alms’, and the heated debate to which it gave rise.³ Clark mainly focused on English data and estimates – most importantly (and controversially)⁴ his estimates of the national income using the income approach (see also Clark (2010)) – and did not pay a lot of attention to what was happening in the rest of Europe, however.

So far, the answering of the questions about the growth trajectory of the European economy before industrialization has thus been severely constrained by data problems. The optimism of De Vries and Van der Woude is based on a few scattered data points concerning possible levels of income in the Dutch Republic (or Holland),⁵ whereas the pessimism by Clark (2010) is largely based on his national income series for England calculated via the income approach.⁶ What is missing, in our opinion, is a consistent set of estimates of the national accounts via the output approach of the European countries in the pre-1800 period, making it possible to study the process of economic growth in detail. A research project with the aim to put together these sets of estimates of long-term economic growth in Western Europe before the Industrial Revolution already started in the 1990s (initiated by Herman van der Wee and Angus Maddison),⁷ and is now reaching a stage in which detailed and annual estimates of GDP per capita for key regions in Western Europe are being put together such as for England, Italy, and Spain.⁸ This paper presents the results of such a project for Holland, the most populous and wealthy province of the Netherlands, for which relatively rich historical sources are available making it possible to construct annual estimates of GDP and its components.

The case of Holland is of obvious importance for the debate sketched in the Introduction. It was undoubtedly one of the most dynamic parts of Europe in the centuries before 1800 and had, as demonstrated by De Vries and Van der Woude (1997, pp. 693–699), already a relatively modern institutional framework. Their hypothesis of ‘a first round of modern economic growth’ is largely based on the case of this province. A reconstruction of the national accounts of the province should make it possible to answer the question if (and when) this region generated such a process. Or was its development a typical example of ‘Smithian’ growth, driven by the expansion of international trade and resulting from increased specialization and improved allocation of resources (e.g. Mokyr, 2010, p. 5)? Was it another example of the wave-like character of an ‘efflorescence’, typical of the pre industrial economy (e.g. Goldstone, 2002), which in the long run did not lead to a (much) higher level of GDP per capita? How important were ‘modern’ drivers of economic growth such as technological change and the accumulation of human and physical capital? And, assuming that De Vries and Van der Woude are correct that institutions in this part of the world were indeed remarkably modern already in the 16th and 17th centuries, why did this ‘first modern economy’ cease to generate growth and structural change after 1650 or 1670? Or did it continue to grow after 1670?

The focus on the province of Holland has big advantages: it was the most urbanized, dynamic and richest province of the Dutch Republic, and is therefore typical for the pattern of change that can be found in the most developed parts of Western Europe in this period.⁹ Studying this case informs us about the growth processes that were possible in this part of the European economy, which were not limited by the decreasing returns of the agricultural sector (because this sector was so small in this region). Moreover, we were also able to reconstruct the basic outlines of the growth trajectory of the Holland economy in the late Medieval period (between 1347 and 1500), which makes it possible to study a period in which structural transformation was dramatic and an important source of economic growth. By adding these 150 years to the growth record, we can also put the experience of this economy during its ‘Golden Age’ in perspective.

Finally, our intention is to chart the most important features of long term growth in Holland in this paper, focusing on its ‘proximate causes’; we do not intend to test ideas about its ‘ultimate causes’ from new institutional economics or unified growth theory.