As of 2017, the Netherlands had a higher GDP per capita than Germany, France, Denmark, Italy, Belgium, Australia, Canada, Spain, Portugal, Greece… and the list can go on and on, making the Dutch one of the richest nations in the world. But it wasn’t always such a prosperous country. In 1555, the Dutch Republic was ruled by the Spanish Monarch, eventually resulting in long eighty years lasting war between the two nations. It wasn’t until 1581 when the Union of Utrecht proclaimed independence from Spain. Despite all the war destructions and hardship, the Dutch continued expansion on the seas and discoveries of the new routes and lands (source: Amsterdam Info). But to effectively fight the Spaniards, the Dutch Republic needed money and infrastructure to undermine Spain’s position in the trade. The solution was the United East India Company, often referred to as the Dutch East India Company ( Dutch: Vereenigde Oostindische Compagnie; VOC). It was incorporated on 20 March 1602 and was granted a monopoly by the charter from the States General, the highest administrative body in the Dutch Republic.
Figure 1. The Dutch East India Company's ship. Source: The University of Oxford.
Before it was established, a few groups of merchants used to set up temporary enterprises, known as the precompanies, to trade with the Far East. Expeditions were costly and extremely dangerous, but Lodewijk Petram described the viability of the trade with the Far East in his book ‘‘The World’s First Stock Exchange’’:
''In 1595, the flotilla of the earliest precompany, the Long-Distance Company (Compagnie van Verre), set sail from Texel. The expedition was not particularly successful in commercial terms, but it did prove that it was possible to do business in the East Indies without being overpowered by the Portuguese (ruled by the Spanish crown at the time), who dominated the trade with the Orient, so other soon followed suit''.
The Dutch East India Company became arguably the world’s first publicly-traded Company. On 31 August 1602, a total of 1,143 investors subscribed to the initial capital of the Company’s Amsterdam chamber, raising 3,674,945 guilders of share capital. The Company was set in the forty-six articles of its charter, an equivalent of the Articles of Associations for British companies today. It was article 10 that allowed the general public to buy into the Company. The directors and traders of precompanies were worried that Amsterdam would take absolute advantage of the newly established, leaving out other Dutch provinces. Thus, it was decided that the Company’s chambers should be located in six Dutch cities: Enkhuizen, Hoorn, Delft, Rotterdam, Middelburg, and Amsterdam. All the directors of the precompanies that were still in business also became of the relevant VOC branches; that way, everyone was kept happy.
It was, however, an expensive investment for many shareholders. It took the Company about ten years to send its first ships onto the sea. Therefore, the VOC made it clear that the conveyance or transfer of shares was possible and could be done through the bookkeeper of the relevant chamber. On 3 March 1603, Jan Allertsz tot Londen became the first shareholder to dispose of his subscription with a value of 2,400 guilders to Maria van Egmont and further 600 guilders to Mrs. van Barssum. Although Allertsz wasn’t entitled to any profits incurred from the trade with the East Indies (an equivalent to modern dividends), he would make a profit from his initial investment with the Company because the price of the shares rose in the interim. The rise in shares price was caused by the increasing interest to buy shares from the general public and the shrinking supply of shares available. It wasn’t until 1776 when the father of modern economics, Adam Smith, refined the demand and supply theory published in his masterpiece: ‘‘The Wealth of Nations’’. Theory, however, as we can see, was prevalent before the publication of Smith’s books.
The first notable physical location of the Amsterdam Stock Exchange was the Hendrick de Keyser Exchange, named after its architect. The building officially opened in August 1611 and was built over the watercourse of the Amstel river. Before this, investors traded their shares in the St. Olaf’s Chapel or on ‘Nieuwe Brug’ (New Bridge), the northernmost bridge over Damrak, by the harbor. Nowadays, this is right opposite Amsterdam’s Central Station, which stands on an island that was not constructed until the 19th century.
Lodewijk Petram described the early days of the Amsterdam Stock Exchange with the following passage:
''From August 1611, when the exchange building opened, this was the place where most share transactions were negotiated. But it was not a stock exchange as we know stock exchanges from, especially, the 20th century, where only stocks, bonds and other financial instruments were traded. This was first of all a commodities exchange, where merchants in beer, salt, grain, timber and many other goods came to do their business. Right at the back was the place where shares were bought and sold''.
Between the incorporation of the VOC and 31 August 1602, the initial company's shareholders were able to subscribe for the shares in the merchant's house and one of the directors of the Dutch East India Company, Dirck van Os. This was pretty much the equivalent of today's initial public offering (IPO) process. The company grew in power and size and today is dubbed as the biggest and wealthiest enterprise ever. According to Business Insider, the VOC would be worth in today's money approximately $7.9 trillion. This is the equivalent of Germany, the UK, and Spanish's GDP combined (as of 2019).
The VOC was a commercial powerhouse for about two centuries. The motives to incorporate the Dutch East India Company were both commercial and political. The Dutch believed that if they could expel Spaniards from the lucrative Asian market, they would no longer be able to finance the war in Europe. With time, however, the VOC started to lose its power and eventually became bankrupt due to the corruption and the crippling debt. The United Dutch East India Company ceased to exist in 1799 when the Dutch Government revoked the company's charter and took over its debts and possessions. Although the company didn't survive, its establishment put the Dutch Republic at the forefront of global trade and made it an economic superpower. The Netherlands today wouldn't be the same if it weren't for the Dutch East India Company.
Bibliography:
Petram, L. (2014). The World's First Stock Exchange. [ebook] Columbia University Press. Available at: https://www.perlego.com/book/774545/
Britannica (n.d.). Dutch East India Company. Available at https://www.britannica.com/topic/Dutch-East-India-Company
Desjardins, J. (2017). Business Insider. How today's tech giants compare to the massive companies of empires past. Available at https://www.businessinsider.com/how-todays-tech-giants-compare-to-massive-companies-of-empires-past-2017-12?r=US&IR=T