[Viewpoint] The Dutch Golden Age: The East India Company and Pragmatism

Amid the ever-turning wheels of history, many nations and peoples have experienced their own golden ages, and for the Netherlands, the 17th century was its greatest golden era. The empire that ruled the seas for over a century not only achieved economic prosperity in trade, commerce, and finance but also reached world-class levels in scholarship and the arts. In science, there were physicists of Newtonian caliber like Huygens, Janssen and Leeuwenhoek who invented the microscope, and Lippershey who created the first telescope. In philosophy and law, the "Christ of Philosophy" Spinoza and the "Father of International Law" Grotius made their mark. In art, masters of light such as Rembrandt and Vermeer were active, making this period a prequel to the Belle ?poque of late 19th-century Paris.

The remarkable glory achieved in a short time by a country small in both population and territory was centered around the Dutch East India Company. At the time, this colossal corporation was worth as much as the combined value of the top 20 modern American companies. The Dutch East India Company, together with the Amsterdam Stock Exchange?the world's first stock exchange?formed two sides of the same coin and became the crown of the golden age. However, despite the publication of Vega's "Confusion of Confusions" (1688), the world's first book on stock investment, much about the true nature of this joint-stock company and stock market, which can be considered the origin of modern capitalism, remained shrouded in mystery. In 2011, young scholar Rodebeke Petram, after sifting through piles of 400-year-old national archives for his doctoral thesis, succeeded in reconstructing the period's reality. Based on Petram's book "The World's First Stock Exchange," which was written from his dissertation, several major misconceptions commonly accepted as general knowledge can be highlighted as follows.

First, was the Dutch East India Company the world's first joint-stock company? Strictly speaking, no. The origin of joint-stock companies is debated, with some tracing it back to Roman times. Even considering the modern model, the English East India Company, established in December 1600, predates it. The Dutch trading companies, feeling threatened by this English company, merged in March 1602 to form the VOC (Vereenigde Oostindische Compagnie, or United East India Company). However, unlike the English company, the VOC raised capital through public subscription rather than private placement, resulting in initial capital ten times larger, and the development of a secondary market led to the world's first stock market. Moreover, the continuous accumulation of profits gave it a stronger going concern characteristic. Considering these factors, it is reasonable to regard the VOC as the first true joint-stock company in practice.

Second, were there stock certificates? No. If stock certificates had been issued, ownership would have transferred simply by handing over the certificate. But since there were no certificates, every transfer required both the transferor and transferee to visit the company's shareholder registry officer together to register the change of ownership. To avoid this cumbersome process, derivative markets such as liquidation trades, forwards, and options developed.

Third, did shareholders have rights? There were no public rights such as voting rights for director appointments; shareholders only had the right to receive dividends. They were more like creditors or beneficiaries of a trust receiving performance-based dividends than true shareholders.

Fourth, was there a stock exchange? There was no organized market regulatory institution with self-regulatory functions; only a market existed. In other words, it was not a formal exchange like Yeouido Stock Exchange but rather a street within the Namdaemun Market where many private securities transactions took place. An organized exchange as a members-only club of brokers exercising private governance appeared only toward the late 17th century.

Fifth, did the historical symbol of speculation, the Tulip Mania (1636?1637), have a significant impact on the Dutch economy? Not really. Most tulip traders did not trade VOC shares, and the number of tulip traders was smaller compared to stock traders. Even after the tulip mania, VOC shares continued to rise steadily.

The success of the Netherlands is attributed largely to its free and open society and thorough pragmatism. While surrounding great powers all adopted absolute monarchy, the Netherlands was the only republic, with less discrimination based on social status and recognition of religious diversity, unlike other countries where religious tribunals still operated. Consequently, many Jews and Protestants migrated from the Iberian Peninsula and neighboring countries. Most of these migrants were intellectuals and merchants filled with reform and innovation mindsets. In this atmosphere, creative innovations such as joint-stock companies and stock markets emerged. These innovations, blossoming on the soil of freedom and pragmatism, extended to England and the United States, shaping the world we know today.

Seong Hee-hwal, Professor, Inha University School of Law

This content was produced with the assistance of AI translation services.