With Jonathan Scott, Professor of History at the University of Auckland, and author of How the Old World Ended: The Anglo-Dutch-American Revolution 1500-1800
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Steve had a very interesting conversation with Professor of History at the University of Auckland, Jonathan Scott, author of How the Old World Ended: The Anglo-Dutch-American Revolution 1500-1800. Their discussion offered listeners fascinating insights into how the “Old World” became the “New World.”
The Changing Of The World, 1500-1800
Steve first asked Jonathan what prompted him to write a book about this particular period of world history. Jonathan replied, “It’s the last period before, as it were, we began to live the way that we do now. And one of the arguments of my book is that it involved the greatest amount and range of changes to human life in all of recorded history.” Steve noted that it was a period filled with major wars, mass migrations, revolutions, and major shifts in political landscapes that included the destruction of many European monarchies and the creation of republics, all of which combined to, ultimately, produce the modern miracle of economic plenty that exists today.
Jonathan’s research revealed that “The most interesting thing about the whole transition from agricultural economies to the Industrial Revolution is that it could so easily not have ever happened.” He characterized the shift that changed the Old World into the New World as “extraordinarily unlikely, almost impossible, and somewhat accidental.”
The European world in 1500 was a world of agricultural economies. Jonathan explained that the relatively low yields of grain agriculture significantly limited the world because there simply wasn’t enough food produced to, for example, support the existence of cities with very large populations. Another key limiting factor was that the success or failure of the economy wasn’t within human control. It was, instead, determined by the weather. The Industrial Revolution changed the economy by bringing control of the economy much more directly under human direction, rather than it being dictated by the cycle of the seasons
It Began In The Netherlands
While many people think of the Industrial Revolution beginning in England and America, according to Jonathan, the initial seeds of change blossomed—out of necessity—in the Netherlands. He said, “The situation there was, essentially, that the geography of the Netherlands was not that well-suited for agriculture but was dominated by rivers, canals, and the surrounding ocean. And so it happened that in a place where agriculture was extraordinarily difficult, water made other ways of sustaining a living uniquely possible.”
Steve noted that the waterways, by providing for the cheap transportation of goods, significantly improved the financial capabilities of the people who began focusing on earning their living through transportation and trade. He informed listeners, “In fact, for a time, during the 150-year span from 1500 to 1650, the Netherlands became the richest country, per capita, in all of Europe.”
England’s Edge And Empire
England started to take note of the wealth that was being created in the Netherlands and began to emulate what the Dutch were doing. Unlike the situation in the Netherlands that was created from necessity, the motivation to shift toward a more trading and shipping economy in Britain was more purely an economic motivation, the desire for greater economic wealth. England was more well-blessed with natural resources, not only better land for farming, but also land richer in resources such as timber, coal, and metals, particularly tin, lead, and iron. That advantage in natural resources—along with important political, social, and military factors—was what ultimately led to the English, rather than the Dutch, to usher in the Industrial Revolution.
Another important factor was the difference in the nature of the colonization between the English and the Dutch. Again, as in the move toward more seaborne shipping, the Dutch had the early lead, provided by their spice-rich colonies in the Dutch East Indies. They were nearly a full century ahead of the British in terms of developing a rich trading economy.
But the British were eventually able to overcome the Dutch head start and emerge a larger, stronger, and wealthier empire, primarily because of the nature of their colonies. The colonies of the British empire—North America, India, and Africa—were much larger, not only in terms of land but also in terms of population. That meant that not only did they have access to more resources, such as tobacco and cotton in America, but they also gained an advantage because their colonies also became major trading partners. The Dutch colonies mainly provided only resources for the Dutch, whereas the English colonies provided both new resources and an ever-growing population of consumers. The importance of the rise of consumerism was a key factor in fueling the Industrial Revolution through what Jonathan has termed “the alchemical power of American shopping.”
A New Way Of Life
Steve interjected information about the great upheavals, militarily and socially, that were occurring as the English began to rise to ascendancy in the 17th and 18th centuries. The Thirty Years’ War, 1618 to 1648, was primarily a religious war between Protestant and Catholic countries. By the end of that conflict, an estimated eight million people had died from a combination of war, famine, and disease. Steve related the stark fact that “41% of the Irish population was wiped out.” This decimation was a major cause of the beginning of a vast migration of Irish people to the New World, one that would continue for the next 250 years.
During this time period, America was settled primarily by various religious groups, such as the Pilgrims and the Quakers, who saw the New World as a place that offered them religious freedom In Jonathan’s opinion, it was this huge stirring and flourishing of new ways of life, religious beliefs, and cultural changes that ultimately gave rise to the transition from the Old World to the Modern World.
Jonathan believes that a particularly crucial event was the Republican Revolution of 1649 in England, led by Oliver Cromwell. Although the monarchy was eventually restored after a 10-year conflict, it was now a constitutional monarchy, one in which Parliament held much more power than it ever had before. This move to a representative form of government was a monumental shift in political thinking, a shift that eventually gave rise to a genuinely constitutional, republican government in the newly-formed United States of America.
A New World Of Finance
These huge political changes, centered primarily in England and America, were also accompanied by an explosion in population. England’s rise to being a world superpower and worldwide empire, in which global trade expanded exponentially, also gave rise to important, new financial products. Once again, the Dutch initially led the way, creating limited liability corporations, developing stock exchanges, and creating insurance companies, which were a critical facilitating tool of trading that was dependent on long and uncertain ocean voyages.
And once again, the British followed the Dutch lead but eventually moved past the Dutch with their own innovations. The London Stock Exchange, originally formed in 1571 and undergoing important structural upgrades in 1669 and again in 1773, became the financial trading center of the world until overtaken by the New York Stock Exchange in the 20th century. The formation of the East India Company as a joint-stock company in Britain in 1657 was a major step in establishing the British Empire. The Dutch East India Company and a French East India Company were formidable but both together were eventually dwarfed by the size and power of the British firm, which led the colonization of both India and Hong Kong. At one time, the East India Company had a private army much larger than that of the actual British Army.
Another key economic innovation of the Dutch was the practice of lending money to the government, the loans being guaranteed by a local legislature. Vast sums of money could now be lent to the monarchy because the republican legislature was guaranteeing that the money would be repaid. Previously, no one ever trusted or expected monarchs to repay loans. But when republican, representative institutions began to guarantee the loans, everything changed as far as the public willingness to lend huge sums of money to the government.
The English copied that idea from the Dutch, and then went a big step further by creating a national bank, the Bank of England, and linked that central bank to Parliament as the guaranteeing institution. Jonathan explained, “What that, the forerunner of the modern government bond market, created was an incredible new instrument of public credit that enabled the British government to obtain much more money to spend on trade, on war, on everything, than just the amount of money that the government took in through tax revenue.” Basically, the British government gained the advantage of financial leverage. That kind of financial leverage, along with the other financial innovations, was key in making possible the Industrial Revolution as it enabled the rise of large corporations and the funding of government projects such as the building of the transcontinental railroad in the United States following the Civil War.
Jonathan’s book covers much more than he and Steve could discuss in one conversation, as it details the intricate history of how the interaction of the Dutch, the English, and America changed the face of the world economy.
To learn more, you can take a sneak peek inside Jonathan’s book here.
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Steve Pomeranz: You might wonder why I chose this next subject as the topic for today’s show. I can tell you that I think it’s a need within all of us to understand as best we can how, in a historical context, we got to where we are today. Now I’m not speaking of politics but of the bigger picture against the sweep of history of how the world changed from old to new. The world before the Industrial Revolution into the modern world. The book that I read and that I’m referring to is entitled, How the Old World Ended: The Anglo-Dutch-America Revolution, 1500 to 1800. And with me today is the distinguished author, Jonathan Scott, Professor of History at the University of Auckland. Welcome to our program, Professor Scott.
Jonathan Scott: Thank you very much, Steve. It’s a pleasure to be here.
Steve Pomeranz: Now Professor Scott also joins us from Auckland or New Zealand, right?
Jonathan Scott: Correct.
Steve Pomeranz: Great. It’s currently about 3:00 o’clock here in Florida and about 9:00 AM where he is. Let’s start, Professor Scott, why is this era that you wrote about, why is this so important to our understanding of our world today?
Jonathan Scott: Well, the era is called by historians, the Early Modern, so it’s the 300 years that separates Medieval from Modern. And so it’s the last period before, as it were, we began to live the way we do now. And one of the arguments of my book is not simply that this period shows us how we lived in the Medieval period behind and became Modern, but that that change involved the greatest change and the widest-ranging series of changes to human life in all of recorded history. It’s especially interesting for me.
Steve Pomeranz: The change you describe in your book is one, as I read it, beset by major wars, mass migrations, revolutions, violent shifts in the political landscapes, the destruction of European monarchies, and the creation of new republics. And then this modern miracle of economic plenty created by these new forms of government. But was the Industrial Revolution likely considering the way things were in medieval times?
Jonathan Scott: It wasn’t, is the short answer. And the slightly longer answer is that all of those developments and events that you’ve listed quite correctly fit into the period in a way that made the broader change that I’m trying to understand possible. But they weren’t any of them causes of the change. The most fundamental cause of the change or thing that permitted the change from Medieval to Modern was a transition from agricultural to post-agricultural economies. And that was extraordinarily unlikely, almost impossible, and possibly accidental. The most interesting thing about this whole process that I’m trying to understand, to me, is that it could so easily not have happened or not have happened in the way that it did, and I’m trying to understand how it was possible and why it occurred in the way that it did.
Steve Pomeranz: Well, when you describe the realities of an agrarian economy, you realize how really limiting it is to the growth of wealth for the populations it serves. For example, growing grain itself depleted the nutrients in the soil, so one-third of the land had to be left fallow to maintain the nutrients and it competed with animals for pasture, also reducing the area for grain. What were some of the other aspects of living in purely agrarian economies that kind of kept them stuck in this cycle of feast and famine?
Jonathan Scott: Well, I think probably the two most important other factors were that the yields of grain agriculture were so low. On average in Europe in the early modern period, at the end of the year of growing season, you might get eight grains back from one that you planted. A yield of eight to one, it’s a very small amount of food, a very small number of calories. It doesn’t permit a large population. Most important limit is that agricultural populations could never become very large because the capacity of the food supply to sustain the population was strictly limited. And then the other part of the answer is that these agricultural societies were cyclical and sustained in a cycle because the cycle was better for seasons, they’re economies that entirely depended on what they can grow and what they can grow is controlled by the annual process of four seasons. And that’s not under human control. Humans and the control of the climate.
Steve Pomeranz: But from a very unlikely place, a place where living was rather difficult because of the landscape, enter Holland and the Netherlands to basically begin this era of trade actually for the grain that they so sorely needed and could barely produce themselves. Tell us about the Netherlands and the beginning of this revolution.
Jonathan Scott: Well, one of the emphases in my book is that although in the long run, understanding the transition from what I call the old world to the new is a global story. Understanding how it was possible in the first place involves first looking at some very local factors and especially at one which is the unique geography of the Netherlands. In particular, the fact that it was a water world dominated not by land or anything you could grow on land but by rivers, the ocean, canals and surrounding seas. And so the story about how human beings first left agricultural societies behind begins in a place where agriculture was extraordinarily difficult, but where water made other ways of earning a living possible to a unique extent.
Steve Pomeranz: Water really provided cheap transportation for the movement of goods, which is I think a theme that we see all the time, whether it’s the canals in England or even the Erie Canal in the United States. This idea of transporting over water back then really improved the financial capabilities of those that were using it. And the Netherlands became the richest country per capita in Europe after a while.
Jonathan Scott: Yes, in fact, by a long shot, the richest and before that, the richest region of Europe had been central and northern Italy, especially the famous canal city of Venice. Another illustration of the importance of these water networks.
Steve Pomeranz: Interesting. What year range are we talking about right now?
Jonathan Scott: When we’re talking about the Netherlands? Or when we’re talking about the whole period?
Steve Pomeranz: Yeah, the Netherlands, the Netherlands.
Jonathan Scott: I’m talking about the development and rise of the Dutch economy, especially between 1500 and 1650 so that 150 years.
Steve Pomeranz: Okay. Looking at the geography of the Netherlands to Britain, give us a picture of how far or how close they were to each other.
Jonathan Scott: Well, they’re close. Physically, the closest part of the European continent to Britain, to England is France. It’s 24 miles across the channel at that narrowest point. And you can see one side of the channel from the other on a clear day. The Netherlands isn’t quite that close, you can’t see it. But the networks of water transport connecting the facing river estuaries of the Thames in southeast England and the delta in the center of the Netherlands into which three major rivers flow, it’s those two facing river deltas and the long-established medieval and early modern networks of water transport that knits the Netherlands and England together more closely than any other two parts of northwestern Europe.
Steve Pomeranz: At this point, England starts to take notice of the wealth that’s being created in the Netherlands and wants to emulate what the Dutch are doing and how the Dutch had created that. Now relative to the resources that the Netherlands lacked, Britain had much better resources. Tell us a little bit about what they were blessed with versus the lack thereof in the Netherlands.
Jonathan Scott: Yes. This is a slightly complicated story because first of all, yes, it’s very important and it’s very interesting that England had all sorts of natural resources that the Netherlands didn’t have. In fact, they were almost opposite in some ways. These are agricultural economies at the beginning of the period and England has much more and much less challenging, much richer and more productive agricultural land. It’s not flat and constantly threatened and inundated by the ocean and by salt water, as the coast of Netherlands is. It’s much bigger. It has lowland and upland and the capacity for greater agricultural variety. And then beyond agriculture, England also has a rich supply of much richer than the Netherlands of timber, of coal, of metals that are mined in the early modern period, especially tin and lead and iron. It has all of those rich resources. And later in the story, they become very important to answering the question of why the industrial revolution occurs in Britain rather than in the Netherlands.
At the beginning of the period, it’s not quite so straightforward because having been blessed with rich natural resources as an agricultural economy has the effect of making it much less likely that you will attempt to change the economy because it’s working. It’s in the Netherlands where agriculture is difficult, that the Dutch driven and challenged to make innovations which will turn out to have global importance.
Steve Pomeranz: I think a lot of the story though also has to do with the colonies or the areas that Britain had conquered and subdued and became trading partners where they had the American colonies, they had colonies in Africa and so on. They were able to not only manufacture goods or have goods manufactured cheaper elsewhere, but they were able to control the flow of the sale of their goods to all their colonies around the world. Now I know the Dutch were also very adventurous and had colonies too, but did they match up with the English colonies?
Jonathan Scott: The Dutch were in colonial settlements as well as in most other areas ahead of England, well ahead of England. At least a century ahead of England. They established by the beginning of the 16th century, sorry, by the beginning of the 17th century, the beginning, the early 1600s, a fabulously wealthy global empire with its most important node in the Spice Islands of the Dutch East Indies. Modern-day Indonesia and England had nothing to compare with this. The Dutch were ahead and their empire was slightly different. One of the things that the story told in my book ends up concluding, and this was surprising to me as I was doing the research, is that England’s empire is absolutely crucial to explaining how the old world ended, how industrialization became possible. But especially a particular part of that empire, that is the North American Protestant colonies settled in the 17th and 18th centuries, and those colonies were unique.
They were unlike any Dutch or any other English colonies, and they were not rich. They were not economic success stories in the way that the Dutch East Indies spice empire was; they were colonies for settlement and the establishment of a culture and a way of life that were moderate in their wealth. But for various reasons, in the long run, they made the breakthrough in Britain that created the Industrial Revolution possible.
Steve Pomeranz: Yeah. Not only were Americans manufacturers of goods, maybe it’s the cotton and tobacco and these kinds of things, raw materials that were sold, but also were consumers, strong consumers, from the very beginning. And I think maybe that story has continued. I want to talk a little bit about the wars of religion that Europe went through. These horrendous casualties that it produced that you speak about in your book. Hundreds of thousands died during the German Revolution, the 30 Years War, almost 6 million died. The wars of the three Stuart kingdoms, 90,000 died, that’s just 4% of the population. The Scot’s 60,000 died, 6% of the population. And the Irish, 660,000 people died, 41% of the population died. This period of time, mostly I think driven by economics and religion would’ve been a time of tremendous upheaval and a horrendous time to live, I think.
Jonathan Scott: Totally. It’s what historians call “interesting times” that we should all pray not too live in “interesting times.” You’re absolutely right. And thank you for focusing on this aspect of the period. The early modern period, especially in Europe but also in a number of other parts of the world, is extraordinarily turbulent and bloody. And this is a really important part of my story for various reasons, and I’ll just pick out two. One is, as you mentioned earlier, I emphasized that the vast migrations of people sit and trained by these upheavals and by their religious causes, especially, really important in stirring up ways of life and cultures and modes of political and religious belief in a way which stimulates the transition from what I’m calling the Old World to the New World, to the Modern.
And then the other feature of this turbulent and bloody history, which is really crucial in my book, is that there is in 1649, in the middle of the 17th century in England, a spectacular republican revolution that is the final consequence of nearly a decade of civil war in England. And that revolution completely explodes the existing English state and sets in trying to process of transforming the English, what later becomes the British government, creating an entirely new political and military state. And it’s only in the context of those spectacular revolutionary changes that what the English learned from the Dutch in the 18th century create a new global superpower. Politics and social movements and war are a tremendously important part of the overall picture.
Steve Pomeranz: Professor Scott, I noticed in the book that the degree to which a population increased seemed to have a direct effect on the power that a country was able to attain. And actually, the reverse as well, that when a population decreased, it decreased a country’s power. Are those two factors highly correlated?
Jonathan Scott: I would say no; they’re not straightforwardly correlated. For instance, in 1700 at the end of the 17th century when Britain is starting to compete with and overtake France in terms of political and military power and economic prosperity, it has a much smaller population. France has 20 million people, Britain has five million, so there’s no straightforward correlation. It’s more complicated than that.
Steve Pomeranz: Okay. Well, I just noticed that the populations in these countries seem to increase pretty dramatically. They’re doubling, tripling, quadrupling over a period of let’s say 150 years. All right, the other, I think, important aspect for us all to understand is that both the Dutch and the English created new innovative financial products which were able to support the growth in trade. For example, the Dutch developed limited liability corporations. They developed the stock exchange and insurance companies, which were very important, especially these very dangerous sea trips that these many, many, many, many ships would take back and forth. Talk a little bit about that and talk about some of the British innovations as well.
Jonathan Scott: I think the most important thing to say about all of those innovations is that they are driven by merchants and mercantile activity and what merchants want. For instance, the capacity to ensure their treasure-filled ships at sea. They occur in places where merchants have real political power and where governments allow merchants to create new institutions in order to maximize trade prosperity. One thing that one notices in the early modern period in Europe is that, although the first rich global colonies are established by Mediterranean powers like Spain and Portugal, in the end, the economies that transform themselves and succeed, the [inaudible] ones like the Dutch and English, and that’s because in England and the Netherlands, it’s merchants who have or acquired the power. And in Spain and Portugal, the Crown keeps enough power to stop merchants, as it were, getting in control and establishing change in the institutional environment.
Steve Pomeranz: Yeah. This is very much what I said in the beginning. The change from the monarchy form of government, monarchical form of government, to the republic form of government, giving the people more power. And this mix of people creates this amazing growth in culture, in trade, and so on. And we continue to see that in economies of today; those that are stiffly ruled by a powerful head of state have more difficulty growing than those that don’t. The British invented the use of national debt, and you wrote that it’s one of their secret weapons in the endless wars of the 18th century. This idea that it was good-quality debt, well-financed debt that allowed them to do more with less.
Jonathan Scott: Yes. It’s important to note here that as with almost everything else, the British didn’t invent it. The Dutch did. All the British did is they transformed it and changed its institutional structure so that in the case that’s the Netherlands who invented, what was there called renten, which is lending by merchants guaranteed by a local legislature, what are called the states in the Netherlands. Lending to the monarch because the legislature has guaranteed that the money will be repaid. Nobody trusted correctly, nobody trusted monarchs to repay political loans. When representative institutions were prepared to guarantee them, these instruments became very successful. What happened is the Dutch invented that, the English copied it, but they then applied it on a national scale by creating the Bank of England, a national bank, and by linking the Bank of England to the English parliament, the central political institution as the guarantor institution. And what that created was a spectacular new instrument of public credit that enabled the government to spend on war and everything else out of all portion to its tax revenue.
Steve Pomeranz: The book is How the Old World Ended: The Anglo-Dutch-American Revolution, 1500 to 1800. We spoke a lot about the Anglo and the Dutch. We didn’t really get to the American, so I would invite you all to take a look at this book and read it. It’s quite fascinating, very well researched and very well written. My guest Professor Jonathan Scott, thank you so much for joining me, Jonathan.
Jonathan Scott: Thank you so much, Steve. It was good to talk.
Steve Pomeranz: I hope you agree that this is pretty fascinating stuff and it gives you an idea of why and how we got to where we are today. To hear this and any interview again, and if you have any questions, as I always say, we love to get your questions, especially about these wonderful topics that we’ve discussed, whether it’s about the history of our presidents, as I did recently with David Rubinstein or about the history of the world, generic topics you’re really not going to hear in many financial shows. But I think it all fits into the context that we all need to live successfully in today’s world. Come to our website, which is stevepomeranz.com and while you’re there, sign up for our weekly update for upcoming live events and the important topics we’ve covered this week straight into your inbox. That’s stevepomeranz.com.
