Deflation Made Simple (Part I)

A falsely vilified phenomenon (Image 031)

Surely you have heard the expression “one step forward, two steps back” authored in 1904 by Vladimir Ilyich Lenin in defense of his leadership as head of Russia’s Social-Democrat Party. Lenin was concerned about a newly forming ideological division between two political factions within his party — a revolutionary majority and an opportunistic minority. Although a different era, it was just as unfortunate for Lenin then, as it is for the Democrat party in the US today. Simply, today the epithet “revolutionary” describes the wrong noun.

In this image the notion of moving backward after having moved forward has nothing to do with political division. Rather, it is a strategy in narrative: first entice the reader with a glorious outcome and then explain how the outcome was achieved. Recounting history has the advantage of being able to know the outcome before one examines the likely causes!

From a financial perspective the Dutch story of the 17th century needs to be told carefully, for it is the last positive story worthy of being told until the drafting of the US Constitution in 1787 and the banning of counterfeit currency in the United States of America. Yes, this despite the horrific interpretation of our founding document by monetary-illiterate Supreme Court justices.

Now, this is not to say that there are not important, instructive, negative stories to tell in between, because both the French and the British, as well as the American colonists, have an awful lot for which to account in between. Even the Dutch would eventually succumb. All of these stories must be told, for they are still relevant today and provide excellent instruction for what we can expect in the near future!

Amsterdam differed from Antwerp, the city from which many fled to escape the hard hand of Philip the Bigot — Phillip II’s nickname before the Dutch Republic was formed. Just to be clear, slavery was not a Dutch enterprise when the Dutch Republic was declared, and the Wisselbank came into being. The formation of the Dutch Republic was a White-on-White, non-dialogue between the oppressive Spanish South and the persecuted Protestant North of the Spanish Netherlands managed from a region of modern France known as Bourgogne (Burgundy) — the birthplace of Charles V, the Spanish king responsible for the promiscuous promissory notes of the bankers of Seville.

What made Amsterdam different from Antwerp was that the merchants who ran the city’s commercial enterprises were mostly Dutch. In addition, Amsterdam itself was part of a newly formed federation of individually governed provinces with substantial independent, political clout. In contrast, Antwerp was more like an Italian city-state dominated by foreign others — not least, the Italians!

Indeed, homogeneity in language and culture make for good communication that relieves everyone from the need of coercive state pressure to maintain order. Hello, America! Are you listening? In a homogeneous culture behavioral misfits — namely, criminals — are also more easily identified and pushed to the fringe, if not imprisoned and punished. No need, nor desire, for electronic facial recognition. Indeed, only the best of charlatans would dare engage in criminal activity, and even then, the degree of their mischievousness was naturally constrained.

Yes, even the Dutch had their problems, though.

When everyone can talk to God, and the relationship between God and His arch rival, Satan, is no longer clearly understood, a lot of crazy things can happen in the minds of those in search of a shared set of values without which human communication breaks down.

In the end, the European continent had been set into motion, and fleeing from one community to another to avoid persecution had become commonplace. What is more the Black Plague (1346-1353) had not been forgotten, and bad nutrition — the chief cause of infectious disease — had not been entirely overcome.

Furthermore, in a world of communities — much like parochial Seattle, State of Washington, USA — that were inundated with new prophets and fleeing immigrants, witch hunting became a great way for a community to come together on an agreed set of values. For, all that was bad was attributed to the witch, and no one wanted to become a smoldering pile of burnt flesh.

In this way, the line between right and wrong could be clearly illustrated, and it was easier for everyone to get along — well, everyone, but the witch. No matter, the witch did not hang around, but the flames that consumed the witch remained alive in everyone’s mind!

Alas, there were plenty of social issues from which business enterprise of all kinds was surely a refreshing break.

Half of the new Dutch Republic economy centered around fishing, overseas trade, and the industries that were derived from what was traded; the other half was focused on rural agriculture and a cottage textile industry that serviced the cities in return for the goods that these latter manufactured.

Building an overseas commercial empire meant hosting a strong navy, and the empire and navy complemented well what would eventually become the Dutch strategy for national defense.

Then too, whereas superior centralized power can make for a great defense against weaker centralized powers, decentralized power makes for better discussion and creativity in overcoming shared social problems. America, are you still there?

This first problem was solved with the creation of the Vereenigde Oostindische Compagnie (VOC) in 1602, a full seven years before the Wisselbank was established. It was a mixture of business and politics — a public-private joint venture with participation from prominent, private businessmen from several of the Dutch provinces, and anyone else who wanted to sign up for the venture.

Indeed, the VOC was the basis for the world’s first stock exchange — an event worth discussing as we move forward.

In liberty, or not at all,
Roddy A. Stegemann