But if one can set aside the thorny questions of morality, some important commercial history comes into focus. It was cartography, shipbuilding and seamanship that were the key technologies permitting these risky voyages and these far-flung trading opportunities. Without maps( however crude), sturdy ships and skilled captains able to handle the buffeting of such a long and treacherous voyage, the physical and financial risks were too great.
The superiority of 17th century Dutch shipbuilding technology proved transitory— by the late 18th century it was Britain who“ ruled the waves”— but was well known at the time. Russian Tsar Peter the Great sought to modernize the Russian navy, and he traveled to Holland in 1697 with a delegation hoping to bring Dutch technology back to Russia. He set out to live and work“ incognito” in the shipbuilding town of Zaandam but was unsuccessful, in part perhaps because he was about 6 ' 8 " tall. He moved on to work in the Dutch East India shipyard at Oostburg near Amsterdam as“ Carpenter Peter of Zaandam.” He was proud of his work and the skills he learned, explaining it all to one Dowager empress, who recalled that,“ He told us that he worked in building ships, showed us his hands and made us touch the callous places that had been caused by work.”
The Dutch East India Company business record was financially, if not always morally, enviable. Over the course of some 197 years, the yearly dividend averaged a whopping 18 % on the initial par value of 100 guilders. The shares naturally traded at a premium to par, averaging about 400 guilders in the late 17th and early 18th centuries. When conditions were“ bullish” the shares traded at over 600, at which point the dividend yield of about 3.5 % was lower than that of Dutch government bonds! Shareholder returns showed a pattern familiar to financial historians: those initial 1602 investors realized annual returns averaging 27 % over the ensuing 40 years, whereas those who bought in 1680 and held for 40 years realized only 7 – 8 % per year.
What was true in 1600 when the East India trading companies in London and Amsterdam were formed was also true hundreds of years later. J. P. Morgan, Sr. biographer Jean Strouse summarized many of Morgan’ s railroad reorganizations in writing that,“ Years of experience
Hermitage Museum
Portrait of Peter the Great by Jean-Marc Nattier, 1717. The Russian tsar sought to modernize his country’ s navy, and he traveled to Holland in 1697 with a delegation hoping to bring Dutch technology back to Russia.
with bankrupt railroads had convinced Morgan that high fixed costs were a greater danger than large capitalization, and the hallmark of his reorganizations came to be the reduction of obligatory charges [ i. e., interest payments ]…‘ Morganization’ tended to shift the balance of a firm’ s securities from debt to equity— from mortgage bonds requiring annual interest payments to stocks that depended on company earnings.”
All of this remains true today. Risky, capital-intensive commercial ideas require a capital structure promising little in the near term but big potential profits in the longer term, and therefore“ capitalism” in the form of joint stock companies and capital markets.
The story of Amazon is a modernday example. A fledgling, money-losing bookseller with little more than a good idea— internet commerce— was nevertheless brought to the stock market in the late 1990s and capitalized at seemingly irrational multiples of its yearly sales. The large pool of capital raised, however, permitted Amazon to quickly spread internet commerce beyond books. In less than 20 years, the fledgling bookseller became one of the world’ s largest and most profitable and valuable companies. Amazon would have had trouble expanding if back in the 1990s it had been forced to make interest payments on a bank loan or on high-yield bonds. By financing itself through stock
issuance, the company was able to combine an“ idea” and a“ technology” with a critical financial ingredient— patient, risktolerant capital— to rapidly change the world.
Those 17th century Dutch and English merchants would have understood the story of Amazon perfectly well.
Daniel C. Munson enjoys reading and writing economic and scientific history. His writings have appeared in Barron’ s, Financial History and other publications. He the author of the new book, Fiscal Follies: A Little Fun with Economics( and Economists).
Notes
1. The Library of Congress in Washington, DC owns the only remaining original copy of the Waldseemüller map, purchased in 2003 for $ 10 million from an old aristocratic German family.
2. Magellan’ s confirmation of a route around the tip of South America was memorialized in a world map done by Genoese cartographer Battista Agnese in 1545. Interestingly, Agnese highlighted two possible routes from Europe to the Indonesian spice islands that figure in this story.
Sources Beard, Miriam. A History of the Business Man.
New York. 1938. Chaudhuri, K. N. The English East India Company. London. 1965. Dalrymple, William. The Anarchy. New York.
2019. de Vries, Jan and Ad van der Woude. The First Modern Economy: Success, Failure, and Perseverance of the Dutch Economy, 1500 – 1815. Cambridge, UK. 1997.
Durant, Will and Ariel Durant. The Story of Civilization: The Age of Louis XIV. New York. 1963.
Ferguson, Niall. Empire: The Rise and Demise of the British World Order. New York. 2003.
Keay, John. The Spice Route: A History. Berkeley, CA. 2006.
Mather, James. Pashas: Traders and Travelers in the Islamic World. London. 2009.
Strouse, Jean. Morgan: American Financier. New York. 1999.
Waliszewski, K. Peter the Great. London. 1898.
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