One has to admire Daniel Hannan for his persistence: time and again he puts his warped view of reality out there, and every time someone is there to call it out for falsehood and misinformation. Yesterday he was at it again, praising the Netherlands, telling “I've realised why I like the Dutch so much: they invented capitalism”. Well, up to a point there, Dan.
Knocking down another dodgy motah?
“Modern capitalism, as defined by the twin concepts of limited liability and joint stock ventures, was invented in the Netherlands” he enthuses, then sadly reflects that “In the years after the Glorious Revolution, as the English-speaking peoples began their ascent to global supremacy, the Dutch exhausted themselves in a series of wars against autocratic France. The banks ... relocated from Amsterdam to London”.
That’s not quite the whole tale, is it, Dan? What the Netherlands, or more specifically the City of Amsterdam, brought us was probably the most significant early example of the modern banking system. The Bank of Amsterdam took in deposits but also made loans using those same deposits, much as banks today do. Thus they effectively created yet more money.
This system, of course, depends on the C-word, as in Confidence: both depositor and borrower must be confident that they will be able to access deposits and loans. They must not all come at once for their money. And, if there is any loss of confidence in the bank, then they surely will all come at once (pace Northern Rock) and then the bank will be well and truly bust.
Now, with sensible management of lending, there should be no problem. But reckless and corrupt lending, to which the Bank of Amsterdam succumbed in association with the East India Company, can spell disaster. The loans it had made went into default. The depositors came for their money as news of the loans, and suspicion of insolvency, spread. The Bank was wound up.
So the Netherlands taught us rather more than Daniel Hannan would like to admit, and it’s a lesson we have seen repeated all too spectacularly in recent years. That lesson is that unregulated capitalism taken to excess – as inevitably happens when greed takes hold – can end in financial collapse. The wars – with the ships failing to come back from the East Indies – contributed to that collapse.
When Hannan talks of “Those hard-headed Calvinist merchants”, who “did more for human happiness than any number of aristocrats or generals or visionary politicians”, he manages to miss the financial crisis that those same merchants dropped on their own country. And the reason why calls for less regulation are so prone to set off bullshit detectors among the electorate.
Still, it’s an entertaining read. It just shouldn’t be let out of the fiction category.