The Netherlands was on the brink of financial collapse in the 1840s. The reason for this was the accumulated debt from decades ago and the high expenditure of King William I (1772-1843). In particular, his refusal to accept the secession from Belgium cost money:for years an army stood ready at the border. When William I abdicated in 1840, his son inherited a throne that faltered under a gigantic burden of debt. The Netherlands was only one step away from a state bankruptcy.
The Netherlands was on the brink of financial collapse in the 1840s. The reason for this was the accumulated debt from decades ago and the high expenditure of King William I (1772-1843). In particular, his refusal to accept the secession from Belgium cost money:for years an army stood ready at the border. When William I abdicated in 1840, his son inherited a throne that faltered under a gigantic burden of debt. The Netherlands was only one step away from a state bankruptcy.
William I had become king of a financially unstable country in 1813. Due to the war against the French, the incorporation into the empire of Napoleon Bonaparte and the trade blockade with England, the national debt had risen from 4 million guilders in 1788 to 1.8 billion in 1810. The annual interest on that debt was barely repayable. While industry developed cautiously in the south, the economic climate in the northern Netherlands was not very promising due to the collapsed trade. Descriptions of the north as "a somewhat weary nation of conservative merchants, staid rentiers and a multitude of paupers" illustrate the depressing situation.
It is no wonder that Willem, with a blazing zest for work and great willfulness, wanted to tackle the economic recovery decisively from the moment he took office. On the one hand, he increased the national debt by regularly issuing millions of loans. On the other hand, he developed a multitude of initiatives to promote industry, industry, trade and transport.
His nickname 'channel king' could just as easily have been 'industry prince' or 'trade monarch'. Under his leadership, De Nederlandsche Bank, the Fonds van Nationale Nijverheid and the Nederlandsche Handel-Maatschappij were founded, which gave mining, industrialization and trade with the Dutch East Indies a significant incentive.
However, the financial basis for these actions had to be sought partly in secret. Most of the administrative elite, especially in the north, were closely associated with old trading families and the so-called haute finance, which mainly consisted of Amsterdam banker families. They wanted a conservative policy aimed at restoring trade. To circumvent them, William I constructed a complex of loans, transactions and pots that only he could understand, in which the state treasury and private funds were completely mixed up.
When the national debt only seemed to increase during the secession procedure of Belgium and Willem did not want to disclose matters, the holders of government papers and the haute finance (groups that partly overlapped each other) revolted. The payment of the interest on the money they lent was regularly 'postponed' and no one except the king had any control over the state finances.
A stream of publications, petitions and addresses illustrate the unrest. For example, Floris Adriaan van Hall, descendant of a prominent Amsterdam family, argued that it was time for more publicity and thus more influence of the elite on state policy. He warned the monarch:"Your Majesty knows the proverb:Love goes out when poverty enters the window."
When it became clear that the king persisted in his headstrong course, and even after the treaty with Belgium in 1839 still issued a hefty loan, the House of Representatives dug its heels in the sand and rejected the proposal. The measure was full when it turned out that Willem had already used the money to cover debts of the Handels-Saatschappij and to close gaps in the budget. The budget for 1840 was therefore unanimously rejected by the House for the first time in history. Disappointed by so much misunderstanding about his well-intentioned economic and financial policy, and about the criticism of his intended marriage to a Catholic countess, William I withdrew disillusioned.
' Difficult and hateful'
His son Willem II inherited the crown of a country that was virtually bankrupt and over which, since the constitutional reform of 1840, he could no longer rule in an autocratic manner. Meanwhile, a new wind was blowing at the Ministry of Finance. Minister Jan Jacob Rochussen tried to tackle the financial chaos energetically. All state finances became public, the formidable Amortization Syndicate – the financial fortress of William I – was closed and the interest on government papers was no longer 'deferred' but neatly paid to the 'interesting coupon cutters', albeit at a lower percentage.
These measures resulted in a reduction of the national debt and some peace of mind among the moneylenders and the administrative elite. But with an estimated government debt of 1300 million guilders and government revenues amounting to more than 70 million guilders, 44 million of which went to the payment of interest charges, it was clear to everyone that more drastic measures were needed.
A tax on income, as Britain had introduced in 1842, could have been a godsend, but Minister Rochussen was not in favor of it. Such levies, he said, were "difficulty and hateful by their very nature." He did promise to reform the existing taxes so that there would be 'more equality'. According to the minister, new levies were not necessary because of the 'satisfactory' colonial benefits, which flowed benevolently into the Dutch treasury, especially from the 1840s onwards.
Rochussen saw the solution mainly in a conversion, a voluntary reduction of the interest rate, for which he submitted a bill. Critics referred to this conversion as an "interest tax." The House also thought it was too much to swim towards a direct levy and rejected the proposal, after which the minister submitted his resignation.
Rochussen's successor J.A. van der Heim composed a similar bill to avert the impending bankruptcy. Not made sense by the experiences of his predecessor, Van der Heim also proposed new levies, including on the interest on domestic securities. He too was met with a storm of protest, and he too resigned. Despite colonial gains, the country was still on the brink of financial ruin in the fall of 1843.
Cunning feat
Floris van Hall was then appointed ad interim Minister of Finance. This cleverly operating politician had strong ties to the Amsterdam financial world. However, his nomination was also controversial. The governor of North Holland reported that Van Hall had 'several enemies and several unfriends'. Thanks to the solution that Van Hall devised to get the country out of the financial crisis, this group would only increase.
During the budget debates, it soon became clear that a majority of the House would not accept new taxes. Van Hall could hardly make any cutbacks on the already low government spending. In the meantime, the governor reported:'The higher classes are very tense about financial matters. The course of the deliberations in The Hague arouses concern.' So the minister had to take action.
Van Hall's proposal turned out to be a cunning piece of financial politics. He issued a voluntary loan of 150 million guilders at a low interest rate, with which earlier loans with a high interest rate could be paid off. Of course the minister knew that the financial elite was not interested in this. They cut their own fingers with this measure, as they were often the recipients of the interest payments.
To win them over, Van Hall added an extraordinary property tax to the proposal, which should yield 35 million. However, this levy mainly acted as a big stick:if the loan was fully signed, the tax would not go through.
A storm of criticism erupted:this proposal was a "Monster Law," which "haunted every mind" and "brought forth pity in every house." Concerned, the governor reported that the bill's impression was "not favourable," while the loan was deemed "not plausible." Not only the proposal, but also the minister had to pay for it. He received anonymous threats, while the king refused to publicly support the proposal.
Despite the protest, the House passed the law by a small majority, but only after the amount for the loan was reduced from 150 to 127 million. Now it was all about:were there still enough financiers in the Netherlands to prevent the controversial tax? As Van Hall's brother-in-law wondered:'Which means of art should be taken in order to avoid the tax?'
Closing budget
That doubt was justified, because even though the law had been passed, the opposition remained strong. MPs who voted in favor received threatening letters or even found an "incited mob" in front of their home. The minister therefore did everything he could to get the loan full. He personally persuaded wealthy Amsterdammers and Rotterdammers to participate, got the king to sign up for half a million and extended the registration period. April 1844 the redeeming word could be spoken:the abhorred tax on property was abolished.
With the success of the loan, the budget for 1844-1845 could be balanced. Previous debts were also paid off, causing the annual interest on the national debt to fall from 44 to 36 million in three years. And, perhaps more importantly, confidence in the state was restored as the agreements with the lenders could be fulfilled. Naturally, the 'beneficial' flowing income from the Indies made an important contribution to this.
Minister Van Hall established his name as savior of the fatherland with the Monster Act. And again he received anonymous mail, but this time with a different tone:
"When the Dutch state credit went horribly failing, Van Hall appeared, ready to avoid that calamity, He asked much, but they built on his shrewdness, And saw the state saved by Courage, Faithfulness and Policy."
The restructuring of public finances not only gave the minister a compliment and much-needed financial security, but also created political space for other matters. The growing liberal opposition took advantage of this and crucial political changes would take shape some years later in the constitutional revision of 1848. Van Hall's Monster Act, which had definitively averted the danger of a state bankruptcy, had been indispensable for this.