Deflation Made Simple (Part I)

A falsely vilified phenomenon (Image 071)

When he got on his horse to Amsterdam, Hendrik had been naïve to believe that he would be able to acquire the entirety of his bond’s par value (principal). So, when his broker told him, as they walked to the pub, that he should not expect to receive the full principal of his loan, Hendrik stopped, as if no longer interested. Had the cost of his stay in Amsterdam not already been more than he had intended? The broker turned to Hendrik and reminded him of the likely response from his supplier, if Hendrik were to present him with his bond as collateral.

After a little more discussion Hendrik agreed to let the broker negotiate on his behalf. In the end, Hendrick had enjoyed his stay in Amsterdam, and would only be committed when he surrendered his bond and signed the contractual agreement that the broker had prepared in advance while omitting the not yet agreed price.

The investor was waiting for them when Hendrik and his broker arrived at the pub. It was a good indication of the investor’s interest. Upon sight of the pair the investor stood up, Hendrik’s broker made the introductions, and Hendrik and the broker were invited to sit down. The investor hastened the waiter who came with three glasses of oude jenever already poured in long-stem tulip glasses. Jenever was once a medicinal drink that had been remade into a popular alcoholic beverage by the Amsterdam Dutch. The oude simply meant that the beverage had been aged (set aside for a long period of time) to improve its overall quality and taste. The glasses were a quiet memory of the Tulip Craze — a popularized investment boom that had played out primarily in the province of Holland in the mid 1630s, and that had ended in disaster for several of the several hundred investors who had participated in it.

No, the forward contracts market championed by the Portuguese Jews of the VOC had not been the only investment game in town, and the Tulip Craze had been particularly patriotic. Hendrik was curious about the glasses.

Tulips were a Dutch import exported from the Ottoman Empire likely made popular by a Dutch resident named Paul Strassburg (1595 – 1654), a well-educated German Calvinist born in Nürnberg, who had participated in the Bohemian uprising in 1618. Perhaps you recall the famed 2nd Defenestration of Prague (Image 50) in which two Catholic noblemen loyal to the not-yet-crowned King Ferdinand II found their way, involuntarily, out of a window and into a pile of manure?

Paul had been in Prague at the time and would eventually take part in the Battle of White Mountain on the side of the Protestants two years later. Although the battle was a bitter defeat for the Protestants, Paul did manage to rise to the rank of captain during the conflict. Because of his proven valor and loyalty to the Protestant movement he was recruited in 1624 by the members of the soon to form Hague Alliance to expand the Alliance’s reach. To this end Paul was sent on a secret mission to meet with Gabriel Behtlen (1580-1629), a famed Hungarian prince in Transylvania (the birthplace of Dracula), whose acquaintance Paul had made during the Protestant defeat at the Battle of White Mountain (1620). The prince did not trust the newly forming Alliance, and Paul’s mission ended in failure. Paul was not easily dissuaded, however, and made good on his failed venture eight year’s later. We will return to this point in just a moment.

In 1621 an illustrious group of individuals met at Siegesburg (Victory Castle) in Segeberg, a large castle town somewhat equidistant between the much larger cities of Hamburg, Lübeck, and Kiel in the northern part of modern day Germany. Among these individuals were the Danish king, Christian IV, a large number of German nobles and princes, representatives from Sweden, England, and the United Provinces, as well as Frederick V, a Protestant Elector of the Holy Roman Empire and former King of Bohemia who had just been stripped of both his titles by the newly elected Holy Roman Emperor, Ferdinand II, the grandson of Ferdinand I and great grandson of Charles V.

Like his great uncle Philip II of Spain in the Spanish Netherlands, Ferdinand II was ruthless in his Catholic zealotry and caused great suffering to the Protestants of Bohemia in the wake of the Battle of White Mountain. The purpose of the Segeberg Convent, the name given to the meeting at Siegesburg Castle, was to prevent Ferdinand II from further aggression, restore Frederick V (Der Winterkönig) to his short-lived Bohemian throne, and thwart further attempts on the part of Ferdinand II to enforce the Counter Reformation on the remaining states of the Empire. Unfortunately, the meeting failed to produce the unity required to restore Frederick V to his throne.

It was also in 1621 that the Twelve Year Truce (1609-1621) between Spain and the United Provinces expired, and the Dutch seized upon the opportunity to ally with England and Denmark to form the Hague Alliance in 1625 against the Holy Roman Empire.

In 1628 Paul Strassburg became an advisor to the court of King Gustav Adolf of Sweden and by 1632 was invited to undertake still another secret diplomatic mission to the same region in which the Protestant forces had been defeated at the Battle of White Mountain more than a decade prior. This time, however, Paul would travel to Constantinople where he would encourage Murad al Rabah ( مراد الرابع ), the Ottoman Sultan (1623 to 1640), to take up arms against the Hapsburg Catholics in modern day Austria. Unfortunately, this offer was also declined, as the Sultan was busy fighting off the Safavid Sufis ( الصوفية ) on the opposite side of his empire.

The Sufis are a story in and of themselves, and we have to return to the Dutch Province for a pending bond contract in Amsterdam. So, please excuse me, if I do not include them. Important is that the Ottomans and Austrians had been largely at peace since 1606. Fortunately, Paul did not walk away empty-handed, as he was presented with a gift of tulip bulbs that he would carry back with him to the United Provinces.

After several more secret diplomatic missions on behalf of the Protestant resistance to both France and Switzerland Paul married at the age of 37 and finally settled down. His first and only wife was the daughter of the Swedish minister to The Hague where Paul remained until his death in 1654.

Hendrik had still not married and found the investor’s story of great interest. Even the broker had been intrigued, but a second round of oude jenever (what became forerunner of modern gin) was not ordered. It was time for business.

See you next time.

In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104