solid line in chart 2). The Spanish got rich by taking their ships and military power around the world, seizing
control of vast areas (13% of the landmass of the earth!) and extracting valuable things from them, most
importantly gold and silver which were the money of the time. As shown by the orange line in the chart of the
relative standing of the great empires, the Dutch gained power as Spanish power was waning. At the time
Spain controlled the small area we now call Holland. When the Dutch became powerful enough in 1581,
they overthrew the Spanish and went on to eclipse both the Spanish and the Chinese as the world’s
richest empire from around 1625 to their collapse in 1780. The Dutch empire reached its peak around 1650
in what was called the Dutch Golden Age. This period was one of great globalization as ships that could
travel around the world to gain the riches that were out there flourished, and the Dutch, with their great
shipbuilding and their economic system, were ahead of others in using ships, economic rewards, and military
power to build their empire. Holland (as we now call it) remained the richest power for about 100 years. How
did that happen?
The Dutch were superbly educated people who were very inventive—in fact they came up with 25% of all
major inventions in the world at their peak in the 17th century. The two most important inventions they
came up with were 1) ships that were uniquely good that could take them all around the world, which,
with the military skills that they acquired from all the fighting they did in Europe, allowed them to
collect great riches around the world, and 2) the capitalism that fueled these endeavors.
Not only did the Dutch follow a capitalist approach to resource allocation, they invented capitalism. By
capitalism I mean public debt and equity markets. Of course production existed before, but that is not
capitalism, and of course trade existed before, but that is not capitalism, and of course private ownership
existed before, but that is not capitalism. By capitalism I mean the ability of large numbers of people to
collectively lend money and buy ownership in money-making endeavors. The Dutch created that when they
invented the first listed public company (the Dutch East India Company) and the first stock exchange
in 1602 and when they built the first well-developed lending system in which debt could more easily be
created.
They also created the world’s first reserve currency. The Dutch guilder was the first “world reserve
currency” other than gold and silver because it was the first empire to extend around much of the world and to
have its currency so broadly accepted. Fueled by these qualities and strengths, the Dutch empire continued to
rise on a relative basis until around 1700 when the British started to grow strongly.
The numerous investment market innovations of the Dutch and their successes in producing profits
attracted investors, which led to Amsterdam becoming the world’s leading financial center; the Dutch
government channeled money into debt and some equity investments in various businesses, the most
important of which was the Dutch East India Company.
At this time of prosperity, other countries grew in power too. As other countries became more
competitive, the Dutch empire became more costly and less competitive, and it found maintaining its
empire less profitable and more challenging. Most importantly the British got stronger economically
and militarily in the classic ways laid out in Chapter 1. Before they had become clear competitors they had
military partnerships during most of the 80+ years leading up to the Fourth Anglo-Dutch War. That changed
over time as they bumped into each other in the same markets. The Dutch and British had lots of conflicts
over economic issues. For example, the English made a law that only English ships could be used to import
goods into England, which hurt Dutch shipping companies that had a big business of shipping others’ goods
to England, which led to the English seizing Dutch ships and expanding the British East India Company.
Typically before all-out war is declared there is about a decade of these sorts of economic, technological,
geopolitical, and capital wars when the conflicting powers approach comparability and test and try to
intimidate each other’s powers. At the time the British came up with military inventions and built more naval
strength, and they continued to gain relative economic strength.
As shown in the chart of relative standing of empires shown above, around 1750 the British became a
stronger power than the Dutch, particularly economically and militarily, both because the British (and
French) became stronger and because the Dutch became weaker. As is classic the Dutch a) became
more indebted, b) had a lot of internal fighting over wealth (between its states/provinces, between the
rich and the poor, and between political factions)2 , and c) had a weakened military—so the Dutch were
weak and divided, which made them vulnerable to attack.