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Capitalism and the Dutch East India Company: Crash Course World History #229
Capitalism and the Dutch East India Company: Crash Course World History #229
For a time, the Dutch East India company dominated the spice trade in southeast Asia, using some clever financial innovations. But was this capitalism or something else?
As this video progresses, key ideas will be introduced to invoke discussion.
Think about the following questions as you watch the video
Why did the Dutch enter into trade in southeast Asia?
What was the VOC and why was it formed? What powers did it have?
How did low interest rates help the Dutch?
Why was it easy for Dutch citizens to invest?
What were some important financial technologies used by the Dutch?
What key advantage did the VOC have over British companies?
How did the Dutch control trade in Southeast Asia?
What caused the VOC to decline and eventually go bankrupt?
Why isn’t the VOC a good example of modern free market capitalism, according to John Green?
: 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 going to compromise
: and call it the V.O.C.
: (music playing)
: (horse whinnying)
: 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 50 years
: tells us a lot about capitalism, technology, and also violence.
: I suppose we could start with the revolt
: of the United Provinces and 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 Southeast 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 Europeans,
: the South China Sea region and eastern Indian Ocean
: was a trade hotbed, 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, "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 V.O.C.
: 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 V.O.C.,
: was run by a 17-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 V.O.C. 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 V.O.C. would essentially operate
: as a state within a state."
: And the V.O.C., 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 V.O.C. was also different from a lot of corporations,
: because it was initially funded with 6.5 million guilders,
: about $100 million 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 V.O.C.'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.
: And 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 four percent annual interest, and that's pretty cheap
: compared to the ten percent it cost corporations
: to borrow money in England
: or the 24.99 percent it costs 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 dikes 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,
: "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 businesspeople 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 V.O.C. was so successful
: was government sponsorship and centralization.
: The V.O.C. 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 V.O.C. 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 V.O.C. 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 Bandanese 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 Bandanese were almost certain to violate,
: and then when they did violate them,
: (groans) it didn't go well.
: In 1609 the Bandanese 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 Bandanese,
: 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 V.O.C. 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 V.O.C. 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 V.O.C. 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 V.O.C. 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 V.O.C. 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 V.O.C.
: 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 Vermeer
: 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 V.O.C.
: 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 V.O.C. 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 V.O.C. 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 V.O.C. 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 V.O.C.
: 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
: while the V.O.C. did eventually disappear
: and its control over Indonesia changed into Dutch colonization,
: the V.O.C. 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.
: Hi, Crash Course is filmed here
: in the Chad and Stacey Emigholz studio in Indianapolis,
: it's made with the help of these nice people,
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: that's very important,
: at least to the future survival of Crash Course.
: Thousands of you have helped us to keep Crash Course free,
: for everyone, forever, through your support at Subbable,
: but now Subbable has merged with Patreon.
: Patreon's an awesome company run by creators
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: and not-- we promise--
: to control the spice trade in Indonesia.
: Thanks again for watching,
: and as we say in my hometown,
: don't forget to be awesome.