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  • 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