The worst trade in history.

The Dutch East India Co. was the world’s first corporate powerhouse and laid the foundations for the modern multinational corporations of today. However, they are often remembered for trading away New York City.  In 1667 the Dutch, whom at the time had occupied New Amsterdam (now New York), conceded the island of Manhattan (now New York) to the English in return for the tiny island of Run in the Banda Islands of the Moluccas Indonesia.   The English promptly changed the name from New Amsterdam to New York.  Why did they make this trade? Firstly, some background on the Dutch East India Co.

 

Founded in 1602, the Dutch East India Company “DEIC”, the world’s first formally listed public company, started off as a spice trader. In the same year, the DEIC undertook the world’s first recorded Initial Public Offering (selling shares in the company to members of the public to raise funding). “Going public” enabled the company to raise the vast sum of 6.5 million guilders quickly. The DEIC’s institutional innovations helped lay the foundations for today’s multinational corporations and the capital markets that now dominate the world’s economic system.

Pioneers of Modern Organizational structure
The DEIC was the first company in history to issue bonds and shares of stock to the general public. It was the DEIC that invented the idea of investing in the company rather than in a specific venture governed by the company. The DEIC was also the first company to use a fully-fledged capital market (including the bond market and the stock market) as a crucial channel to raise medium-term and long-term funds.

The DEIC is generally considered to be the world’s first truly transnational corporation. It was also the first multinational corporation to operate officially in different continents such as Europe, Asia and Africa. While the DEIC mainly operated in what later became the Dutch East Indies (modern Indonesia), the company also had important operations elsewhere.  Although it was a Dutch company its employees included not only people from the Netherlands, but also many from Germany and from other countries as well. Besides the diverse north-west European workforce recruited by the DEIC in the Dutch Republic, the DEIC made extensive use of local Asian labour markets. As a result, the personnel of the various DEIC offices in Asia consisted of European and Asian employees. Asian or Eurasian workers might be employed as sailors, soldiers, writers, carpenters, smiths, or as simple unskilled workers.  At the height of its existence the DEIC had 25,000 employees who worked in Asia and 11,000 who were en route.

Becoming an Economic Powerhouse
In 1619, Jan Pieterszoon Coen was appointed Governor-General of the DEIC. He saw the possibility of the DEIC becoming an Asian power, both political and economic. On 30 May 1619, Coen, backed by a force of nineteen ships, stormed Jayakarta (Jakarta), driving out the Banten forces; and from the ashes established Batavia as the DEIC headquarters. Dutch plantations were used to grow cloves and nutmeg for export. Coen hoped to settle large numbers of Dutch colonists in the East Indies, but implementation of this policy never materialised, mainly because very few Dutch were willing to emigrate to Asia.

Another of Coen’s ventures was more successful. A major problem in the European trade with Asia at the time was that the Europeans could offer few goods that Asian consumers wanted, except silver and gold. European traders therefore had to pay for spices with the precious metals, which were in short supply in Europe, except for Spain and Portugal. The Dutch and English had silver and gold by creating a trade surplus with other European countries. Coen discovered the obvious solution for the problem: to start an intra-Asiatic trade system, whose profits could be used to finance the spice trade with Europe (purchase spices from Asia and on-sell them for high profit margins throughout Europe).

The DEIC traded throughout Asia. Ships coming into Batavia from the Netherlands carried supplies for DEIC settlements in Asia. Silver and copper from Japan were used to trade with India and China for silk, cotton, porcelain, and textiles. These products were either traded within Asia for the coveted spices or brought back to Europe.  During this period, the Dutch East India Co. effectively controlled the spice trade throughout Europe as a monopoly.

Australian History
In terms of world history of geography and exploration, the DEIC can be credited with putting most of Australia’s coast (then Hollandia Nova and other names) on the world map, between 1606 and 1756.  While Australia’s territory (originally known as New Holland) never became an actual Dutch settlement or colony, Dutch navigators were the first to undisputedly explore and map Australian coastline. In the 17th century, the DEIC’s navigators and explorers charted almost three-quarters of Australia’s coastline, except its east coast. The Dutch ship, Duyfken, led by Willem Janszoon, made the first documented European landing in Australia in 1606.

In 1642, Abel Tasman sailed from Mauritius and on 24 November, sighted Tasmania. He named Tasmania Anthoonij van Diemenslandt (Anglicised as Van Diemen’s Land), after Anthony van Diemen, the DEIC’s Governor General, who had commissioned his voyage. It was officially renamed Tasmania in honour of its first European discoverer on 1 January 1856.

Pepper War and decline of monopoly on spice trade
Around 1670, two events caused the growth of DEIC trade to stall. In the first place, the highly profitable trade with Japan started to decline. The loss of the outpost on Formosa to Koxinga in the 1662 Siege of Fort Zeelandia and related internal turmoil in China (where the Ming dynasty was being replaced with the Qing dynasty) brought an end to the silk trade after 1666. Though the DEIC substituted Bengali for Chinese silk other forces affected the supply of Japanese silver and gold. The shogunate enacted a number of measures to limit the export of these precious metals, in the process limiting DEIC opportunities for trade, and severely worsening the terms of trade. Therefore, Japan ceased to function as the lynchpin of the intra-Asiatic trade of the DEIC by 1685.

The Third Anglo-Dutch War temporarily interrupted DEIC trade with Europe. This caused a spike in the price of pepper, which enticed the English East India Company (EIC) to enter this market aggressively in the years after 1672. Previously, one of the tenets of the DEIC pricing policy was to slightly over-supply the pepper market, so as to depress prices below the level where interlopers were encouraged to enter the market (instead of striving for short-term profit maximisation). The wisdom of such a policy was illustrated when a fierce price war with the EIC ensued, as that company flooded the market with new supplies from India. In this struggle for market share, the DEIC (which had much larger financial resources) could wait out the EIC. Indeed, by 1683, the latter came close to bankruptcy; as its share price plummeted from 600 to 250
However, the writing was on the wall. Other companies, like the French East India Company and the Danish East India Company also started to make inroads on the Dutch system.  The attempt to continue as before as a low volume-high profit business enterprise with its core business in the spice trade had therefore failed (as the French and Danes began to gain a foothold on obtaining spices to trade throughout Europe). The Company had however already (reluctantly) followed the example of its European competitors in diversifying into other Asian commodities, like tea, coffee, cotton, textiles, and sugar. These commodities provided a lower profit margin and therefore required a larger sales volume to generate the same amount of revenue.

Trade for Manhattan
In the 17th century, the tiny island of Run in the Banda Islands of the Moluccas Indonesia, was of great economic importance because of the value of the spices nutmeg and mace which are obtained from the nutmeg tree (Myristica fragrans), once found exclusively in the Banda Islands of which Run is one.   During this period, both the Dutch and the English had occupied Run with the Dutch eventually driving the English out.  Similarly, both the Dutch and the English had occupied Manhattan Island (now New York) during the same period of time.

After the Second Anglo-Dutch War of 1665–1667, England and the United Provinces of the Netherlands agreed in the Treaty of Breda to the status quo: The English kept the island of Manhattan, which the Duke of York (the future James II, brother of Charles II), had occupied in 1664, renaming the city on that island from New Amsterdam to New York. In return, the island of Run was formally abandoned to the Dutch.   At the time, the Dutch thought they were getting the best deal.  Nutmeg was worth more than it’s weight in gold 350 years ago and the spice grew exclusively in the Banda islands.
The estimated land (without buildings) values of the two islands today:

• Manhattan USD $1,400,000,000,000 ($1.4 Trillion)
• Run significantly less (no data available)

The Dutch monopoly on nutmeg and mace was later destroyed by the transfer of nutmeg trees to Ceylon, Grenada, Singapore and other British colonies in 1817, after the capture of the nearby main island, Bandalontor, in 1810 by Captain Cole (England), leading to the decline of the Dutch supremacy in the spice trade.

Lasting Legacy
The DEIC played a crucial role in the rise of corporate-led globalization, corporate governance, corporate identity, corporate social responsibility, corporate finance, modern entrepreneurship, and financial capitalism.  During its golden age, the company made some fundamental institutional innovations in economic and financial history. These financially revolutionary innovations allowed a single company (like the DEIC) to mobilize financial resources from a large number of investors and create ventures at a scale that had previously only been possible for monarchs.  The birth of the Dutch East India Co. is often considered to be the official beginning of the corporate globalization era with the rise of the large-scale business enterprises (multinational/transnational corporations in particular) of the world today. As the world’s first publicly traded company and first listed company (the first company to be ever listed on an official stock exchange), the DEIC was the first company to issue stock and bonds to the general public. Considered by many experts to be the world’s first truly (modern) multinational corporation, the Dutch East India Co.  was also the first permanently organized limited-liability (an investor could purchase shares in the company without being liable for losses beyond the value of their shares) joint-stock company, with a permanent capital base.  The Dutch East India Co.  shareholders were the pioneers in laying the basis for modern corporate governance and corporate finance. With its pioneering features such as corporate identity (first globally recognized corporate logo), entrepreneurial spirit, legal personhood, transnational (multinational) operational structure, high and stable profitability, permanent capital (fixed capital stock), freely transferable shares and tradable securities, separation of ownership and management, and limited liability for both shareholders and managers, the DEIC is generally considered a major institutional breakthrough and the model for the large-scale business enterprises that now dominate the global economy.

Source – This article has been sourced from Wikipedia and reduced in content to enable it to fit into our document.  For the full article in its entirety please visit Dutch East India Company in Wikipedia.

​Written by Michael Hogue.