Amsterdam: The history of the first financial hub

Conflict with Spain

In the 16th century, the Dutch rebelled against Philip II of Spain and his successors. The main reasons for the uprising were the imposition of new taxes, the tenth penny, and the religious persecution of Protestants by the newly introduced Inquisition. The revolt escalated into the Eighty Years' War, which ultimately led to Dutch independence.

Photo: History learning site

Strongly pushed by Dutch Revolt leader William the Silent, the Dutch Republic became known for its relative religious tolerance. Jews from the Iberian Peninsula, Huguenots from France, prosperous merchants and printers from Flanders, and economic and religious refugees from the Spanish-controlled parts of the Low Countries found safety in Amsterdam. The influx of Flemish printers and the city's intellectual tolerance made Amsterdam a centre for the European free press.

Dutch East India Company

Founded in 1602, the Dutch East India Company (Verenigde Oost-Indische Compagnie or VOC) flourished and survived for two centuries. The company, a combination of commercial organisations in various cities of Holland and Zeeland, traded both in Asia and between Asia and Europe. It was the first public company to issue negotiable shares and it developed into one of the biggest and most powerful trading and shipping concerns. The VOC ran its shipyards, the largest being in Amsterdam. This spectacular trade with Asia made the Dutch Republic the world's key commercial hub.

Photo: The Nautilus Cup

The most valuable company of all time, however, was the Dutch East India Company (VOC). According to howmuch.net, its worth reached a staggering $8.28 trillion in 1637. Right before the bubble burst in 1637, the firm was worth 78 million Dutch guilders, which is $8.2 trillion (£6.3trn) in 2020 dollars, equivalent to the combined GDPs of Germany, the UK and France."

Photo: Internet

The VOC was the first company to sell stocks to the general public, conducting the world's first proper IPO in 1602 when it was trying to raise capital. The minimum investment was 3,000 guilders or £500, which works out at around $195,000 (£160k) when adjusted for inflation. As the company's profits quickly soared, it was able to pay out bountiful dividends, much to the delight of its investors.

Photo: Internet

1606 AD certificate issued by the Dutch East India Company to Pieter Harmensz, a former male resident of Enkhuizen, who served as an assistant to the city's mayors.

Photo: Wikipedia

Amsterdam stock exchange

In 1609, the Amsterdam Stock Exchange was established by the VOC and became the first "modern" stock exchange to trade paper stocks and bonds.

Later the VOC also transformed the Amsterdam Stock Exchange, causing a number of innovations to be introduced, such as futures contracts, options, short selling, and even the first bear raid. Isaac le Maire was the largest shareholder of the VOC in its early years, and he initiated the first bear raid in stock's history, selling shares of VOC short in order to buy them back at a profit and buy additional shares.

These actions also led to the first government regulation of stock markets, attempting to ban short selling in 1621, 1623, 1624, 1630 and 1632 as well as options and other forms of financial wizardry. The fact that these laws had to be passed so many times shows the regulations were not that effective.

The 17th century is considered Amsterdam's Golden Age, during which it became the wealthiest city in the western world.Ships sailed from Amsterdam to the Baltic Sea, North America, and Africa, as well as present-day Indonesia, India, Sri Lanka, and Brazil, forming the basis of a worldwide trading network. Amsterdam's merchants had the largest share in both the Dutch East India Company and the Dutch West India Company. These companies acquired overseas possessions that later became Dutch colonies.

Amsterdam was Europe's most important point for the shipment of goods and was the leading Financial centre of the western world.The Bank of Amsterdam started operations in 1609, acting as a full-service bank for Dutch merchant bankers and as a reserve bank.

Dutch tulip mania 

The real story of the tulip bubble starts the same place as the myth: In the court of the Ottoman emperor in Constantinople. Here, Western traders are believed to have encountered the flowers and brought them back to Europe. Tulips arrived at the fashion-forward French court, and then, during the 1500s, made their way to the Dutch elite.

"Tulips are fashionable because there's a fashion for science and natural history, especially among people who are humanistically educated and relatively well off. 

During the early 1600's tulips gain popularity and prices start soaring. Bulbs could be sold dozens of times before the bulb itself actually changed hands, and eventually some bulbs ended up selling for the value of a mansion.

The price continued to go up until they reached a peak in February 1636. But it was starting to dawn on people that the tulips might be overpriced. That tulips, which once seemed rare and exotic, were actually easy to grow and propagate.

The tulips that were being sold that winter were still locked in the frozen ground. So the sales were all just contracts—promises written down on paper.

Then, on February 3, 1636, a bulb didn't sell at an auction in the Dutch city of Haarlem—and that failure to sell caused prices to drop. The bubble was over.

Photo: The Stratup

And then, when the bubble inevitably burst, the crash came: Tulips lost their value, traders went bankrupt—some even drowned themselves in Haarlem's canals. The Dutch economy took a hit and plunged into an economic crisis.

As bubbles typically do, Tulipmania consumed a wide cross-section of the Dutch population.