WHEN the future George IV was given £60,000 in the 1780s to spruce up Carlton House, a rambling building on the south side of London's Pall Mall, he employed architect-to-the-nobility Henry Holland, who spent 13 years rebuilding, remodelling, enhancing and extending it.

When completed, the palatial exterior of Carlton House needed a suitably pimped-up interior so for decoration, George turned to his ever-expanding collection of mid-17th century Dutch paintings.

Executed by a group of artists which flourished in the cities of the Dutch Republic a century earlier, they were known at the time as “modern” paintings because they showed simple scenes from everyday life: pubs, houses, courtyards and public spaces in which people were shown drinking, eating, working, selling, gossiping and playing lutes.

Today, they're referred to as "genre" paintings and it was in front of a group of them in Carlton House's fragrantly-named Rose Satin Drawing Room that writer and illustrator WH Pyne set up his easel one day in 1819, ready to add another image to his book A History Of The Royal Residences.

Visitors to the new exhibition at Edinburgh's Queen's Gallery, Masters Of The Everyday: Dutch Artists In The Age Of Vermeer, could be forgiven for missing the three small examples of Pyne's work which are included. But they're actually a good place to start because as well as showing what George IV himself made of them, they allow modern viewers a little laugh at his expense: after all, there is something rather crass about hanging Adriaen van Ostade's The Interior Of A Peasant's Cottage in a plush and luxurious London townhouse.

Van Ostade's work is more about cosy domesticity than it is grinding poverty. Still, the irony isn't lost on exhibition curator Desmond Shawe-Taylor.

“It's completely counter-intuitive,” he admits. “George IV hung them in Carlton House in ludicrously grand settings, so you have this real contrast between a peasant cottage and a royal palace.” But, he adds: “I think he would have realised that he was enjoying a broad comic view of the peasant classes.”

Shawe-Taylor likens the appeal of genre paintings to that of The Simpsons today: we enjoy a comic take on ordinary people who are either mischievous (Bart) or feckless (Homer), but at the same time we want that world to be peopled by characters who are hardworking (Lisa) and caring (Marge).

But as well as the apparent disconnection between these scenes of the everyday and the place in which they were originally displayed, there's a further irony to conjure with: it was the French Revolution of 1789 which helped popularise these images of working life among the British royals.

Though even in the time of George III, the British royal family had been buying Dutch genre paintings – Johannes Vermeer's Lady At The Virginals With A Gentleman was actually bought in 1762, the year George IV was born – it was in France that they were particularly admired. Those counts and countesses who escaped to Britain with more than just their heads and their powdered wigs also brought their art collections with them, so the works quickly found a receptive audience among London's elite.

And so, via its royal family, Britain was introduced to a generation of painters whose art was more likely to show merchants and sots than Madonnas and saints, and who were certainly obsessed with light but had no time for the celestial sort which bathes the great religious works of the Renaissance. Instead they painted it exactly as they saw it, with a scientific exactness that suited the age.

Chief among these genre painters was Vermeer himself, whose Lady At The Virginals With A Gentleman is included in the Queen's Gallery show. But other names include Gerrit Dou and Nicolaes Maes (who both studied under Rembrandt), Pieter de Hooch (whose A Courtyard In Delft At Evening: A Woman Spinning offers one of the first pictorial representations of direct sunlight) and Jan Steen, a painter-turned-pub landlord.

Steen's kinky 1663 painting A Woman At Her Toilet is typical of the movement. It shows a well-to-do woman dressing (or is she undressing?) in a scene laden with coded messages. A string of pearls spills ostentatiously from a jewellery box and a lute with a broken string leans on a skull in the foreground. To the 17th-century viewer, these clues were easy to read: sex, death, the transience of pleasure. The sunflower and cherub design on the stone wall which separates viewer from subject, meanwhile, symbolise earthly love and fidelity. And hanging off the woman's naked foot is a blue stocking while nearby her shoes lie abandoned. Both items had a strong erotic charge for the Dutch.

Take a close look at Nicolaes Maes's luminous 1655 work The Listening Housewife – it has a central position in the Queen's Gallery show – and you see more of this subtle humour at play. Here's a woman standing on a spiral staircase staring straight at the viewer. She has a warning finger to her lips, a smirk on her mouth and she's practically winking. Take a closer look, and you can see why: there's a smooching couple in a darkened lower room, their tryst lit by a second man holding a lantern. Everyone here's a voyeur – except the house cat, which is curled up asleep on a chair.

But while sly comedy, erotic motifs and raucous domesticity were often the subjects of choice for the Dutch genre painters, their works celebrate commerce, corporate responsibility and intellect too. The great Age of Reason philosopher Spinoza was a Dutchman, after all, and it was in Holland that the stock market as we know it was invented and that history witnessed its first financial bubble – the so-called “tulip mania” of the 1630s. So these works fit into a wider philosophical framework that put science, rationality and the cult of modernity on an (almost) even footing with God, superstition and tradition.

The genre paintings also highlight the political and cultural awakening that occurred in the Dutch Republic after Holland was granted formal independence from Spain in 1648, and the prosperity and social change which came with it.

“One of the conditions which affected all the arts in Holland was the huge expansion of the middle-class market,” says Shawe-Taylor. “That meant there were loads of people who wanted to buy paintings, a far greater proportion than in any other country at that date. I think that gave rise to people wanting paintings of themselves and of their own lives. They're definitely a bit aspirational, especially the interiors.”

The art historian Kenneth Clark called the Dutch paintings of this period “the first visual evidence of bourgeois democracy”. For Desmond Shawe-Taylor, meanwhile, they're an “ideological celebration of the prosperity of the Dutch Republic” and an expression of "straightforward national pride".

And while it may not be easy to discern in the rumbustious tavern scenes, the expert rendering of light falling on glass or the playful allusions and naturalistic subject matter, they're also an expression of something longer lasting: a quiet revolution in what art is and who art is for. As for where you hang it, well, that's still up to you.

Masters Of The Everyday: Dutch Artists In The Age Of Vermeer is at the Queen's Gallery, Palace of Holyroodhouse, Edinburgh (until July 24)