The Dutch Lesson

By 1585 the city of Antwerp, in the rebel Dutch Seventeen Provinces, was the booming and flourishing center of northwestern Europe, a cultural, commercial and financial power, which had just suffered the Spanish Fury, and was about to suffer a siege by the troops of the current superpower, Spain, led by one of all times toughest armies, the Spanish Tercios, under the command of the Duke of Parma. And it was going to lose the battle.

At the beginning of that siege, the Dutch felt somehow comfortable with the situation, as long as they kept a free access to the Scheldt River, which was a natural and easy way for supplies. Even so, risks were to be taken to carry all necessary goods to the city under siege, and so it was done. A group of so-called “speculators” took their risks, in order to get a good profit through a great uncertainty and hazard, and launched a fleet full of supplies, in order to reach the besieged city and make business.

In the meantime, inside Antwerp, scarcity of food was on the rise, and so did prices, thus also raising unease among the population, and causing the Magistrate of the city to issue an edict regulating the price of goods. As most interventionist actions, it produced a non-desired yet expected effect: just the opposite of what was sought. As the poet Schiller would put in words:

“The magistrate, in order to avert an evil that would have pressed upon individuals only, had recourse to an expedient which endangered the safety of all. Some enterprising persons in Zealand had freighted a large fleet with provisions, which succeeded in passing the guns of the enemy, and discharged its cargo at Antwerp. The hope of a large profit had tempted the merchants to enter upon this hazardous speculation; in this, however, they were disappointed, as the magistrate of Antwerp had, just before their arrival, issued an edict regulating the price of all the necessaries of life. At the same time to prevent individuals from buying up the whole cargo and storing it in their magazines with a view of disposing of it afterwards at a dearer rate, he ordered that the whole should be publicly sold in any quantities from the vessels. The speculators, cheated of their hopes of profit by these precautions, set sail again, and left Antwerp with the greater part of their cargo, which would have sufficed for the support of the town for several months.”

Friedrich Schiller, “Geschichte des Abfalls der vereinigten Niederlande von der spanischen Regierung" or “History of The Revolt of the Netherlands”

The rebels lost a good supply, but it didn’t seem that important. But not too long later, and in one of those military moves that may look logical now, but that was quite a novelty at that time, the Duke of Parma set to isolate Antwerp by river, building a floating bridge thought the Scheldt River that would keep new fleets from reaching the rebels. After long fights and a true war of wit held by both parties, inventing or adapting most ingenious devices to destroy the opponent’s chances (such as the construction of the first floating fortified bridge, or the first submarine bombs), the city of Antwerp had to admit the truth of its weakness, and surrendered.

It is obvious that it cannot be charged the fault of the lost of the city only on the regulations that had been issued but, looking back at that moment, we feel it’s more than clear that the chances of survival were utterly reduced after the “speculators” left Antwerp with their loads. This measure had several effects, but it is interesting to observe how both supply and demand were altered at the same time by such a “social” measure:

-          The evil “speculators” refused to take any risk to get a profit just like the one they could get anywhere else. Thus, they didn’t supply.

-          The population, unaware of the situation, as long as they didn’t feel the scarcity of goods which is transmitted by means of high prices, kept on consuming as before, exhausting the remaining provisions far too fast.

Moral: as Henry Hazlitt taught in his book, Economics in One Lesson,

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”