43 THE CHANGING WORLD ORDER SHARE OF MAJOR INVENTIONS (TRAILING 30 YEARS) 0% 4% 8% 12% 16% 1400 1500 1600 1700 1800 1900 EMPIRE SIZE (% WORLD, EST) 1400 1500 1600 1700 1800 1900 2000 0% 2% 4% 6% 8% 10% 12% SHARE OF GLOBAL OUTPUT 1400 1500 1600 1700 1800 1900 2% 3% 4% 5% 6% 7% SPANISH MARAVEDI COIN (GRAMS OF SILVER, INDEXED) 20 40 60 80 100 120 1500 1550 1600 1650 1700 1750 1800 Spanish coin devalued massively during the 17th century 44 THE CHANGING WORLD ORDER NLD UNIVERSITIES FOUNDED (% WLD) NLD BOOKS PUBLISHED (% WLD) NLD SHARE OF MAJOR INVENTIONS (OVER 30 YEARS) NLD EXPORTS (% WLD) 0% 2% 4% 6% 8% 1500 1600 1700 1800 1900 2000 0% 10% 20% 30% 40% 1500 1600 1700 1800 1900 2000 0% 2% 4% 6% 8% 10% 12% 1500 1600 1700 1800 1900 2000 0% 10% 20% 30% 1500 1600 1700 1800 1900 2000 45 THE CHANGING WORLD ORDER MAJOR INVENTIONS (PER MLN POPULATION) NLD GBR FRA 0 1 2 3 4 5 6 7 8 9 1500 1600 1700 1800 1900 Unprecedented innovation during Dutch Golden Age UK innovation rises with Industrial Revolution France lags REAL GDP PER CAPITA (2017 USD) EUR NLD GBR ESP DEU FRA 1,000 2,000 4,000 8,000 1400 1500 1600 1700 1800 1900 Dutch outperformance Spanish decline British industrialization German catch-up 46 THE CHANGING WORLD ORDER DUTCH EAST INDIA CO DIVIDENDS (%GDP) 0.0% 0.2% 0.4% 0.6% 0.8% 1625 1675 1725 1775 5 8 10 13 15 18 20 1550 1600 1650 1700 1750 1800 Limited debasement after the founding of the Bank of Amsterdam GRAMS OF FINE SILVER PER GUILDER 47 THE CHANGING WORLD ORDER (A) The Dutch declare independence from Spain (B) Dutch East India Co, Bank of Amsterdam, and stock exchange founded (C) First and Second Anglo-Dutch Wars (D) Seven Years’ War and Shadow Banking Crisis of 1763 (E) Fourth Anglo-Dutch War, run on the Bank of Amsterdam (F) Dutch East India Co nationalized, downfall of the Dutch Empire 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 DUTCH STANDING RELATIVE TO OTHER GREAT POWERS (EST) Major Wars Netherlands (A) (B) (C) (D) (E) (F) Dutch Golden Age France takes control of the Netherlands The Dutch lose to the British The Dutch defeat the British Key Events ACCOUNTS AT BANK OF AMSTERDAM BANK OF AMSTERDAM HOLDINGS (%GDP) Gold and Silver Deposits 0% 2% 4% 6% 8% 1600 1650 1700 1750 1800 0 1,000 2,000 3,000 1600 1650 1700 1750 1800 48 THE CHANGING WORLD ORDER -10% 0% 10% 20% 30% 1600 1625 1650 1675 1700 1725 1750 1775 DUTCH EAST INDIA COMPANY BALANCE SHEET (%GDP) Assets Debt Equity Dutch East India Company effectively wiped out in the Fourth Anglo-Dutch War 8 -15 -10 -5 0 5 10 1750 1760 1770 1780 1790 1800 DUTCH EAST INDIA COMPANY PROFIT & LOSS (GUILDER, MLN) 8 This chart only shows the financial results from the Dutch East India Company reported in patria, i.e., the Netherlands. It does not include the parts of the revenue and debt from its operations in Asia but does include its revenue from goods it sourced in Asia and sold in Europe. 49 THE CHANGING WORLD ORDER 0% 1% 2% 3% 4% 5% 6% 7% 1700 1725 1750 1775 1800 BANK OF AMSTERDAM HOLDINGS (%GDP) Gold and Silver As deposit holders exchange their guilder for gold and silver, the Bank of Amsterdam loses its holdings in precious metals 0 2 4 6 8 10 12 14 BANK OF AMSTERDAM LOANS OUTSTANDING (GUILDER, MLN) Govt City Chamber Dutch East India Company Bank of Amsterdam starts to print to save Dutch East India Company 1775 1780 1785 1790 50 THE CHANGING WORLD ORDER 0.70 0.80 0.90 1.00 1.10 1775 1780 1785 1790 1795 1800 DUTCH GUILDER vs Gold vs GBP (A) (B) (C) (D) (A) Guilder stable through most of the decline era (B) Fourth Anglo-Dutch War leads to money printing and initial pressure on the guilder (run on the Bank of Amsterdam) (C) Short period of stabilization as investors seek safe havens at the start of the French Revolution (D) The French overthrow the Dutch; accounts at the bank basically wiped out 9 VALUE OF THE DUTCH GUILDER 0% 20% 40% 60% 80% 100% 1600 1650 1700 1750 1800 BANK OF AMSTERDAM RESERVE RATIO (PRECIOUS METAL TO MONETARY LIABILITIES) After the Fourth Anglo-Dutch War, there is a sharp decline in the ratio of precious metal to deposits (as depositors flee) 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 vs Gold vs Silver vs GBP Stable during Golden Age 1600 1650 1700 1750 1800 9 To fully represent the likely economics of a deposit holder at the Bank of Amsterdam, we assumed depositors each received their pro-rated share of precious metal still in the bank’s vaults when it closed (that was roughly 20 percent of the fully backed amount, thus the approximately 80 percent total devaluation). 51 THE CHANGING WORLD ORDER 10 100 1,000 10,000 1600 1625 1650 1675 1700 1725 1750 1775 1800 DUTCH EIC TOTAL RETURNS BY YEAR OF INITIAL INVESTMENT (100 = STARTING WEALTH, 50YR INTERVALS, LOG) 1610 1660 1710 1760 Returns go from incredible to devastating 10 100 1,000 1% 3% 5% 7% 9% 1600 1650 1700 1750 1800 1700 1720 1740 1760 1780 1800 TOTAL EQUITY RETURNS (INDEXED) Dutch East India Company British East India Company GOVERNMENT BOND YIELDS GBR NLD 52 THE CHANGING WORLD ORDER 0 1 1600 1650 1700 1750 1800 DUTCH BOND PRICES (TERM ANNUITIES) Fourth Anglo- Dutch War and conquest by France Start of various wars in 1672 Rebound after the wars end, but fall with the Glorious Revolution Series of military losses against the French THE CHANGING WORLD ORDER 53 Relative Power Time New World Order New World Order United States United Kingdom Netherlands China CHANGES TO THE WORLD ORDER (CONCEPTUAL EXAMPLE) C H A P T E R 1 0 THE BIG CYCLE RISE AND DECLINE OF THE BRITISH EMPIRE AND THE POUND THE CHANGING WORLD ORDER 54 0 1 Level Relative to Own History (1 = Max) UNITED KINGDOM: INDEX OF KEY DETERMINANTS 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 Major Wars Education Innovation and Technology Competitiveness Military Trade Economic Output Financial Center Reserve FX Status