Amsterdam Entrepôt

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Amsterdam Stock Exchange c. 1612 by Claes Janszoon Visscher. Engraving depicting the Amsterdam Stock Exchange, built by Hendrik de Keyser c. 1612.jpg
Amsterdam Stock Exchange c. 1612 by Claes Janszoon Visscher.

The Amsterdam Entrepôt is the shorthand term that English-language economic historiographers use to refer to the trade system that helped the Dutch Republic achieve primacy in world trade during the 17th century. (The Dutch prefer the term stapelmarkt, which has less currency in the English language.)

Historiography is the study of the methods of historians in developing history as an academic discipline, and by extension is any body of historical work on a particular subject. The historiography of a specific topic covers how historians have studied that topic using particular sources, techniques, and theoretical approaches. Scholars discuss historiography by topic—such as the historiography of the United Kingdom, that of Canada, the British Empire, early Islam, and China—and different approaches and genres, such as political history and social history. Beginning in the nineteenth century, with the ascent of academic history, there developed a body of historiographic literature. The extent to which historians are influenced by their own groups and loyalties—such as to their nation state—is a debated question.

Dutch Republic Republican predecessor state of the Netherlands from 1581 to 1795

The Dutch Republic, or the United Provinces, was a confederal republic that existed from the formal creation of a confederacy in 1581 by several Dutch provinces—seceded from Spanish rule—until the Batavian Revolution in 1795. It was a predecessor state of the Netherlands and the first Dutch nation state.

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The entrepôt system

In the Middle Ages local rulers sometimes gave the right to establish staple ports to certain cities. Amsterdam never received such formal rights (unlike e.g.,  Dordrecht and Veere), but in practice the city established a staple-market economy in the 15th and 16th centuries. This economy was not limited to a single commodity, though at first Baltic grain dominated it. It came into being because the economic and technological conditions of the time required a trade-network based on what is known in economic terms as an Entrepôt, or in other words a central point (for a given geographic area) where goods are brought together and physically traded, before they are re-exported to their final destinations. This need followed from the fact that in those days transportation of goods was slow, expensive, irregular, and prone to disruption, and that supply and demand for goods fluctuated wildly and unpredictably. The risks entailed by these circumstances put a premium on the creation of such a fixed base, where commodities could be stockpiled prior to marketing and final distribution. Furthermore, concentrating storage, transport, and insurance facilities in one place helped reduce transaction costs and keep long-term prices more stable than they otherwise would have been. The entrepôt functioned thus as a central reservoir of commodities, a regulating mechanism smoothing out fluctuations in supply and demand over time and minimizing the effects of interruptions and bottlenecks. [1]

Middle Ages Period of European history from the 5th through the 15th centuries

In the history of Europe, the Middle Ages lasted from the 5th to the 15th century. It began with the fall of the Western Roman Empire and merged into the Renaissance and the Age of Discovery. The Middle Ages is the middle period of the three traditional divisions of Western history: classical antiquity, the medieval period, and the modern period. The medieval period is itself subdivided into the Early, High, and Late Middle Ages.

Amsterdam Capital of the Netherlands

Amsterdam is the capital city and most populous municipality of the Netherlands. Its status as the capital is mandated by the Constitution of the Netherlands, although it is not the seat of the government, which is The Hague. Amsterdam has a population of 854,047 within the city proper, 1,357,675 in the urban area and 2,410,960 in the metropolitan area. The city is located in the province of North Holland in the west of the country but is not its capital, which is Haarlem. The Amsterdam metropolitan area comprises much of the northern part of the Randstad, one of the larger conurbations in Europe, which has a population of approximately 8.1 million.

Dordrecht City and municipality in South Holland, Netherlands

Dordrecht, colloquially Dordt, historically in English named Dort, is a city and municipality in the Western Netherlands, located in the province of South Holland. It is the fourth-largest city of the province, with a population of 118,450. The municipality covers the entire Dordrecht Island, also often called Het Eiland van Dordt, bordered by the rivers Oude Maas, Beneden Merwede, Nieuwe Merwede, Hollands Diep, and Dordtsche Kil. Dordrecht is the largest and most important city in the Drechtsteden and is also part of the Randstad, the main conurbation in the Netherlands. Dordrecht is the oldest city in Holland and has a rich history and culture.

The entrepôt performed an additional function, a derivative of its primary market-function: the physical proximity of merchants promoted the exchange of information about market forces, prices, and developments in the factors underlying supply and demand. [2] This not only lowered the cost of information-gathering but even led to decreasing marginal information costs. [3] Other things being equal, this externality would lower the total marginal cost of goods trading through the entrepôt. It is a well-known economic fact that in circumstances of decreasing marginal costs, economies of scale occur, which can give an advantage to early entrants that permits them to outgrow their competitors, sometimes even leading to a natural monopoly. This may explain why in the field of entrepôts certain markets (Antwerp, Amsterdam) gained a dominant position for some time, while others (London, Hamburg) were left behind and only came into their own when the special circumstances favoring the others came to an end. In the case of Amsterdam those circumstances changed when the technological possibilities of direct trade improved, obviating the intermediating function of the entrepôt. [4]

Marginal cost

In economics, marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good. Intuitively, marginal cost at each level of production includes the cost of any additional inputs required to produce the next unit. At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production are fixed and thus have no marginal cost. For example, the marginal cost of producing an automobile will generally include the costs of labor and parts needed for the additional automobile and not the fixed costs of the factory that have already been incurred. In practice, marginal analysis is segregated into short and long-run cases, so that, over the long run, all costs become marginal.

Externality an impact on any party not involved in a given economic transaction or act

In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit. When there is no externality, allocative efficiency is achieved; however, this rarely happens in the free market, in part because of the pervasive availability of limited liability for business entities.

The resource-based view (RBV) is a managerial framework used to determine the strategic resources with the potential to deliver comparative advantage to a firm. These resources can be exploited by the firm in order to achieve sustainable competitive advantage.

Historical evolution of the system

But why Amsterdam? The mechanism underlying the entrepôt trading-system does not explain the peculiar success of the Dutch Republic and Amsterdam in particular. Other merchant cities might have gained this prize and as a matter of fact, Antwerp for a time did. But the Antwerp entrepôt was destroyed with the Fall of Antwerp (1584–1585) and the subsequent expulsion of its Calvinist inhabitants (half of the city population), followed by the centuries-long blockade of the Scheldt trade. [5]

Calvinism Protestant branch of Christianity

Calvinism is a major branch of Protestantism that follows the theological tradition and forms of Christian practice set down by John Calvin and other Reformation-era theologians.

Scheldt river in France, Belgium and the Netherlands

The Scheldt is a 350-kilometre (220 mi) long river in northern France, western Belgium, and the southwestern part of the Netherlands. Its name is derived from an adjective corresponding to Old English sceald ("shallow"), Modern English shoal, Low German schol, West Frisian skol, and Swedish (obsolete) skäll ("thin").

To explain the peculiar Dutch success we have to take account of a number of factors that in isolation still do not explain the Dutch primacy in world trade, but whose interplay may go far in doing that. The Dutch had gained an important role in the Baltic trade (grain especially) in the 15th and 16th century because of the nature of commodities exchanged (herring for grain, a low-value, high-volume bulk trade) and the dominance of the Dutch in the herring fisheries. These factors became dominant in this trade because Dutch shippers experienced a structural fall in shipping costs due to revolutionary innovations in shipbuilding (the wind-driven sawmill) — which brought down construction costs — and in ship-design (the Fluyt ship that required smaller crews) at the turn of the 17th century. This so improved their competitive position that they soon dominated the European bulk trades, not only the Baltic trade, but also the salt trade of the Iberian Peninsula. [6]

Bulk cargo

Bulk cargo is commodity cargo that is transported unpackaged in large quantities. It refers to material in either liquid or granular, particulate form, as a mass of relatively small solids, such as petroleum/crude oil, grain, coal, or gravel. This cargo is usually dropped or poured, with a spout or shovel bucket, into a bulk carrier ship's hold, railroad car/railway wagon, or tanker truck/trailer/semi-trailer body. Smaller quantities can be boxed and palletised. Bulk cargo is classified as liquid or dry.

Sawmill facility where logs are cut into timber

A sawmill or lumber mill is a facility where logs are cut into lumber. Modern saw mills use a motorized saw to cut logs lengthwise to make long pieces, and crosswise to length depending on standard or custom sizes. The "portable" saw mill is iconic and of simple operation—the logs lay flat on a steel bed and the motorized saw cuts the log horizontally along the length of the bed, by the operator manually pushing the saw. The most basic kind of saw mill consists of a chainsaw and a customized jig, with similar horizontal operation.

Fluyt ship type

A fluyt is a Dutch type of sailing vessel originally designed by the shipwrights of Hoorn as a dedicated cargo vessel. Originating in the Dutch Republic in the 16th century, the vessel was designed to facilitate transoceanic delivery with the maximum of space and crew efficiency. Unlike rivals, it was not built for conversion in wartime to a warship, so it was cheaper to build and carried twice the cargo, and could be handled by a smaller crew. Construction by specialized shipyards using new tools made it half the cost of rival ships. These factors combined to sharply lower the cost of transportation for Dutch merchants, giving them a major competitive advantage. The fluyt was a significant factor in the 17th-century rise of the Dutch seaborne empire. In 1670 the Dutch merchant marine totalled 568,000 tons of shipping—about half the European total.

High profitability of the bulk trade resulted in the possibility of large savings, and the reservoir of savings looking for profitable investment eventually resulted in a lowering of interest rates as a primary effect, and of the development of sophisticated financial markets as a secondary effect. Such financial markets also profited from the phenomenon of decreasing marginal information cost; this soon helped make Amsterdam an important financial center also. [7]

Interest rate percentage of a sum of money charged for its use

An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed. The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited or borrowed.

The physical proximity of a strong financial sector partially explains why after 1590 Amsterdam also became a center for the low-volume, high-value "rich trades" (i.e., commodities like spices, silk, and high-quality textiles). In such trades the Dutch low shipping rates did not necessarily provide a competitive advantage. What did attract the specialists in this type of trade (apart from the favorable financing possibilities) was the influx of skilled workers and entrepreneurs from the southern Netherlands in the 1580s that helped transfer the sophisticated Flemish textile industry to the Republic. This gave her an industrial base for her export trade. The "rich trades" were also stimulated by government intervention, as they were by nature (because of the price-inelasticity of their demand) prone to large price fluctuations (as a little over-supply would bring about a large fall in prices). The readiness of the Dutch government to regulate markets and to provide legal monopolies to chartered companies like the Dutch East India Company helped to lessen the risk of investment in such enterprises. [8]

All these factors conspired to concentrate trade at entrepôts (in view of their trade advantages as described above) and in particular at the Amsterdam entrepôt (once Antwerp had been eliminated as a competitor) because of the time-window (1590-1620) in which they came to exert their influence. The rise of the Amsterdam entrepôt was therefore to some extent also a matter of being in the right place at the right time. But once the entrepôt had been established, its growth-promoting peculiarities helped Amsterdam (and the port cities in the maritime zone of the Netherlands, interlinked to Amsterdam by the area's inland waterways) achieve its position of economic preeminence.

Eventually this preeminence would be undermined by technological and economic changes that would eliminate the advantages of the entrepôt and promote disintermediation. However, these developments were not to occur until the 18th century. During the 17th century, the need for intermediation in commodities and financial markets still reigned supreme. The Amsterdam entrepôt provided great advantages to European consumers and producers (inherent in its operation) and to the merchants that used it. But there also were losers in the process. Competitors, like the Hanseatic and English merchants, lost appreciable market share and hence income, especially after the trade embargoes imposed by Spain on Dutch commerce during the Eighty Years' War had been lifted. The resurgence of Dutch trade on Spain and Portugal and other Mediterranean countries after 1647 overwhelmed the Republic's competitors. [9]

To remedy this situation, first England and later France took to coercion in the form of economic and military warfare. The English Navigation Acts of 1651 and 1660-1663 restricted free trade in an attempt to divert trade to a putative London entrepôt. However, as the Acts only regulated English and colonial trade (and imperfectly so) and England only managed to dominate a few commodities markets for which it formed the main customer, these attempts were never successful. [10] England would only achieve primacy in world trade after other factors had undermined the Dutch entrepôt. French protectionism was eventually more successful, because the French and Dutch economies were complementary, rather than competitive like the Dutch and English economies. Restricting trade between France and the Republic therefore resulted in the roll-back of the specialization that Comparative advantage had engendered in both economies (though at great cost to the French consumer also) and helped throttle the once-flourishing Dutch industries. [11]

In the 17th century, the economic elite of Amsterdam moved with William of Orange to England, where they helped to restart the English international trade, leaving behind in Amsterdam the more religious, and less competitive, burghers.

During the 18th century this combination of adverse economic and technological developments (promoting disintermediation) and foreign protectionism led to a relative decline of Dutch preeminence in world trade and of the Amsterdam entrepôt. [12] It also led to a fundamental restructuring of the Dutch economy, with a large degree of deindustrialization and a shift to service industries, like merchant banking, and foreign direct investment in emerging economies, like the Great Britain of the Industrial Revolution. [13] By that time there was no longer a role for entrepôts in world trade—except Rotterdam, New York, Singapore, and Hong Kong.

Notes

  1. Israel (1989), pp. 14-15
  2. De Vries and Van der Woude, p. 692
  3. As information is a nonrival good that is only partially excludable under the best of circumstances (which probably did not obtain in 17th-century Amsterdam), the marginal cost of information would tend to zero with the growth of the entrepôt; cf. Warsh, D. (2006) Knowledge and the Wealth of Nations. A story of Economic Discovery. Norton, ISBN   0-393-05996-0, pp. 283-287 for a discussion of these concepts.
  4. Kindleberger, pp. 76, 132 ff.
  5. Israel (1989), p. 29
  6. Israel, pp. 18-25
  7. De Vries and Van der Woude, pp. 690-696
  8. De Vries and Van der Woude, pp. 384-385
  9. Israel (1989), pp. 195-207
  10. Israel (1997), pp. 305, 308-312, 315-318
  11. Israel (1989), pp. 297, 304-313, 327-329, 339-358
  12. Israel (1989), pp.377-398
  13. De Vries and Van der Woude, pp. 141-147, 681-683

Sources

Coordinates: 44°33′50″N0°13′32″W / 44.5638°N 0.2256°W / 44.5638; -0.2256

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