Capitalism and the Dutch East India Company: Crash Course World History 229 Video Lecture | A Complete Guide to World History : 2 - World Knowledge

Hi, I'm John Green, this is Crash Course World
History, and today we're going to talk about
our old friend trade and also corporations.
Oh great, another Marxist rant from my union-loving
public school teacher about how capitalism
is destroying the world.
You know, Me from the Past, all the capitalists
call me Marxist, all the Marxists call me
capitalist, I--I can't win!
Here's the thing, Me from the Past, I am grateful
that there is a market for people to, you
know, sell books and make YouTube videos,
and capitalism does a pretty good job of making
goods and services available to large groups
of people.
Plus how else am I going to turn sweat of
the proletariat into delicious Diet Dr. Pepper?
(Not a sponsor. I wish they were a sponsor.)
I'll tell you what, Me from the Past, I've
enjoyed a cup or two of the sweat of the proletariat
over the years and it just doesn't have that
carbonated "pop" of Diet Dr. Pepper.
What were we talking about? Oh right, capitalism.
I like capitalism, what I don't like are monopolies
and violence, and those are both aspects of
one of the first capitalist enterprises and
the subject of today's episode, the Vereenigde
Oostindische Compagnie (and I will remind
you that mispronouncing things is my thing).
In English of course that's the Dutch East
India Company. I'd like to use the Dutch,
though, but I can't pronounce it, so we're
just gonna compromise and call it the VOC.
So you probably remember from our first series
that trade in the Indian Ocean had gone along
swimmingly for hundreds of years until the
Portuguese tried and failed to dominate it
in the 15th and 16th centuries.
And you may also remember that in between
the Portuguese and the massively powerful
British Empire there was another European
power: the Dutch.
At the time, the Netherlands was a country
of 1.5 million people, about as many people
as currently live in Greater Indianapolis.
Now, admittedly, they'd already accomplished
some impressive things, for instance, they'd
dug most of their country out from the ocean,
but how they came to thoroughly dominate world
trade for fifty years tells us a lot about
capitalism, technology, and also, violence.
I suppose we could start with the revolt of
the United Provinces in the union of Utrecht
in 1579, which created the Netherlands, or
perhaps the decision by the Catholic Duke
of Parma in 1585 to let Protestants leave
captured Antwerp and set up shop in Amsterdam,
or we could start in 1595 with the creation
of the first Amsterdam-based investment syndicate,
The Company for Far Lands, which is what I
call my Minecraft server.
So the founder of The Company for Far Lands
published this report called the Itinerario
that excited dreams of vast wealth and spices
from South-east Asia. There's a key passage
in the report that explains the riches available
in the islands east of Malacca:
"In this place of Sunda there is much pepper,
and it is better than that of India or Malabar,
whereof there is so great quantity that they
could lade yearly from thence 500,000 pounds.
It hath likewise much frankincense, camphor,
and diamonds, to which men might very well
traffic without much impeachment, for that
the Portugals come not thither, because great
numbers of Java come themselves unto Malacca
to sell their wares."
You'll note there that the initial idea was
to break into this already existing trade
system and displace the Portugals. So in the
same way that trade in the western Indian
Ocean was flourishing before the arrival of
the Europeans, the South China Sea region
and eastern Indian Ocean was a trade hot-bed,
perhaps even more valuable because of the
riches of China. And it seems that the Dutch
originally planned to try to break into that
existing trade network on equal terms, like,
according to Jacob Van Neck, the captain of
the first successful expedition to Indonesia,
the plan was, quote, "not to rob anyone of
their property, but to trade uprightly with
all foreign nations."
But pretty soon that idea of free trade gave
way to the hard reality that competition meant,
you know, lower prices, and by 1601 there
were enough successful trade companies that
the cost of buying spices in Indonesia was
going up, and also there was suddenly tons
of pepper in Amsterdam, which meant the price
that could be charged for that pepper was
going down; clearly, something had to be done.
Ideally that something would have been lower
prices for everyone, and an efficient marketplace, but
the something that happened instead was the VOC.
Let's go to the Thought Bubble.
In 1601, the United Provinces, aka the Netherlands,
were governed nationally by a representative
body that met at the Hague, called the States
General, although each of the individual provinces
was largely self-governing, and the leader
of the States General was able to convince
all the provinces to accept a single entity to
monopolize the East Indies trade. This new
company, the VOC, was run by a seventeen-member
board called the Heeren XVII, and these directors
supposedly had control over a company that
was chartered with the power to hire its own
people, and also to wage war.
I say supposedly because, you know, it took
a year for communications from the Netherlands
to reach the East Indies, and another year
for company officers to respond, so the VOC
basically operated as its own sovereign nation,
with the power to use as much violence as
it needed to build and maintain its trading
power, like according to author Stephen Bown,
"The VOC would essentially operate as a state
within a state."
And the VOC, together with its sister company
the West India Company, did use violence,
attacking Portuguese and Spanish settlements
in Chile, Brazil, East and West Africa, the
Persian Gulf, India, Sri Lanka, Indonesia,
China and the Philippines between 1602 and
1663, in what you could think of as an early
world war.
The VOC was also different from a lot of corporations
because it was initially funded with 6.5 million
guilders, about 100 million dollars in today's
money. And that capital was expected to fund
business ventures for a long time going forward
-- not just for like one initial trade mission.
And this long-term business thinking was unique,
especially compared to the funding strategies
of the VOC's biggest competitor, the British
East India Company, and it reflected the advanced
financial acumen of the Dutch model generally.
Thanks, Thought Bubble.
So, we've got this company that's basically
also a country. But it's not a particularly
good country, because it doesn't have, like,
any of the responsibilities of government,
nor does it have to answer to the people it's
governing. All it has to do is make money.
And it was really good at making money, like
by 1648 the United Provinces were in better
financial shape than every other nation in
Europe.
You can tell this partly just by looking at
interest rates. Now admittedly, interest rates
are only one measure of financial health and
power, but they're an important indicator,
even today. So, Dutch businesses could borrow
at a rate of 4 percent annual interest, and
that's pretty cheap compared to the 10 percent
it cost corporations to borrow money in England
or the 24.99 percent it cost me to borrow
money on my credit card. And because Dutch
debt was so much cheaper, they could invest
two and a half times as much in pretty much
anything than the English could, including,
like, an army and a navy, and this gave the
Dutch a huge head start over their rivals.
So one reason the interest rates were low
is because the companies were healthy and
they tended to pay people back. But another
is that normal Dutch people were already used
to investing their money in bonds that had
been issued for land reclamation projects,
the famous dykes and windmills that turned
land below sea level into fields where you
could grow tulips, or maybe something else,
but all they ever grow is tulips.
Like according to business historian William
Bernstein, the tradition of investing in bonds,
quote "carried over into trade: after 1600
Dutch citizens would consider it just as natural
to own a fractional share in a trading vessel
to the Baltic or the Spice Islands."
And a fractional share is another really interesting
idea embraced by the Dutch, that allowed merchants
to bear greater risks by purchasing smaller
percentage shares in business ventures. Like,
it's much better to own a tenth of ten ships
than it is to own all of one ship, because
the loss of a single trading ship won't, like, ruin you.
And Dutch business people also enthusiastically
invested in futures markets, guessing what
the price of pepper would be six months or
a year from now, and they created new financial
instruments that could be bought and sold,
and merchants purchased maritime insurance,
which further lowered their risk. And lower
risk means you could invest more of your capital
until eventually you have a completely efficient
market and everything is perfect
--until the 2008 crash.
Wait, what were we talking about?
The Dutch financial system and its corporations
were simply better than their competitors,
and that's why they seized the lion's share
of the trading business
-- but that isn't the whole story.
Like, one reason the VOC was so successful
was government sponsorship and centralization.
The VOC had been chartered by the States General,
and it could count on the Dutch government
to back it up with money and military support.
There's another benefit to being sponsored
by your government, which is that it's very
hard for competition to emerge, because it
isn't sponsored by your government. For instance,
in Indonesia the VOC had a single governor
general managing operations, while the British
East India Company was more of like a collection
of trading posts, each competing with each
other for a share of the spices. Competition
may bring down prices for consumers, but it
also brings down profits for businesses.
In 1605, the VOC realized that if it really
wanted to maximize its profits, it would need
a monopoly of the world's spice trade, and
to do that, they would need permanent bases
in Indonesia. Initially, they got spices by
trading for them with the people who grew
them, especially with the inhabitants of the
Banda Islands, which was the only place where
nutmeg was grown. But again, like, trading
in a fair and equitable manner is no way to
maximize profits.
So at first the Bandinese welcomed the Dutch,
because they were much more laid-back in terms
of religion than the Portuguese, but very
quickly the Dutch tricked them into signing
exclusive trade agreements, which the Bandinese
were almost certain to violate, and then when
they did violate them, ehh, it didn't go well.
In 1609 the Bandinese were like, "No, you
don't understand, like, we need trade for
food," and the Dutch were like, "But you promised!",
and the islanders killed 47 Dutch soldiers
and officers in the ensuing fight.
The Dutch killed far more Bandinese, who were
eventually subdued and agreed to a nutmeg
monopoly with the Dutch, although they continued
to secretly trade with the English.
And after all this, by 1612, Jan Pieterszoon
Coen became the dominant force in Dutch Indonesia.
He was an accountant by training, but also
a ruthless military leader, who is largely
responsible for the Dutch monopoly of the
spice trade, and also for its really terrible
relations with the British, and also for,
like, you know, certain crimes against humanity.
Coen brought about the shift in VOC policy,
away from straightforward trade and toward
monopoly of both shipping and production of
spices. He also made it clear that this trade
needed to be based on military force.
He wrote, "Your Honors should know by experience
that trade in Asia must be driven and maintained
under the protection and favor of your Honors'
own weapons, and that the weapons must be
paid for by the profits from the trade, so
that we cannot carry on trade without war,
nor war without trade."
There is no trade without war, nor war without
trade -- that's something to think about.
Anyway, Coen did make a lot of war, mostly
on the English, despite the fact that the
Netherlands and England were engaged in trade
negotiations between 1613 and 1619.
And in fact fighting between the VOC and the
English continued even after an agreement
was signed. By using force, which included
capturing and torturing English traders, Coen
was able to run off the English and secure
the VOC monopoly over the spice trade.
With the English out of the picture, Coen
could get down to the business of using violence
to dominate not only the trade, but also the
production of spices. His initial plan, to
quote Stephen Bown, was to depopulate the
island to replace their inhabitants with imported
slave and indentured labor under VOC control,
and he proceeded to carry out what amounted
to ethnic cleansing of the Banda Islands.
In about 20 years, the Dutch managed to acquire
an almost complete monopoly on cloves, nutmeg,
and mace. In 1658, they added cinnamon by
taking control of Sri Lanka. And, after 1638,
they became the only Europeans allowed to
trade in Japan. Now, we tend to think that
the heart of the spice trade was between Indonesia
and Europe, but it really wasn't. Like, the
VOC capital at Batavia became the most important
port in all of Southeast Asia, where spices
from Indonesia and gold and copper and silver
from Japan and tea and porcelain and silk
from China all passed through to India, where
they were traded for cotton, which was used
to buy more Asian goods.
And that was the real money-maker for the
VOC. By the middle of the 17th century, only
the highest-value luxury goods from the region
even made it to Europe, because that's where
the margins were the highest.
So the middle of the 17th century was the
golden age for the Dutch; it was the one the
brought us Rembrandt and Ver Meer as well
as all the wealth and finery that was depicted
in their paintings. When you go to Amsterdam,
which you should, and you walk along the canals
and see the beautiful row houses, you'll note
that many of them were built in the 17th century.
And much of that was based on the success
of the VOC and the commerce in spices, but
eventually Europeans' tastes changed, and
the desire for nutmeg was supplanted by
a hunger for sugar.
Of course, the sugar trade would be known
for its righteousness and fair trade -- just
kidding, it would be known for slavery. Also the woolens
produced by the Dutch were being replaced by
the market for cotton. Britain proved better positioned
to dominate the trade in production in these new
and more profitable commodities, and they
eventually copied the centralized
corporate governance and finance capitalism
that had helped make the VOC so successful.
According to Stephen Bown, "Ultimately, maintaining
the monopoly cost more than the spices were worth,"
and the company went bankrupt in 1799.
So the VOC were pioneers of finance and their
relentless pursuit of profits made them the
richest company in the 17th century, but we
need to be careful about celebrating them
as like a harbinger of modern capitalism.
For one thing, it wouldn't have succeeded
without government support, especially if
it had engaged just in free trade. The VOC
had an army and a navy that it used to attack
and intimidate, which is, you know, not free trade.
I think there's a lot to take away from the
story of the VOC. One thing that I like to
remember is that this was all about nutmeg.
We need to think carefully about what we value
and why we value it and what we lose by valuing
it, in the same way that I kind of wish people
in Europe had about nutmeg in the 17th century.
And the second thing is that the VOC did eventually
disappear and its control over Indonesia changed
into Dutch colonization, the VOC provides
a chilling example of what has happened in the past
when corporations become more powerful than states.
Good governments fulfill their responsibilities
to the people they govern, and even bad governments,
you know, are afraid of the people they govern,
and neither of those things happened in Indonesia
when it was under the control of the Dutch
East India Company.
Thanks for watching. I'll see you next week.
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