Sapiens: A Brief History of Humankind

Now, to make matters worse, the king sends a treasury official to your brother to tell him, in no uncertain terms, that he expects to receive another loan of the same size, forthwith. Your brother has no money to lend. He writes home to Dad, trying to persuade him that this time the king will come through. The paterfamilias has a soft spot for his youngest, and agrees with a heavy heart. Another 10,000 gold coins disappear into the Spanish treasury, never to be seen again. Meanwhile in Amsterdam, things are looking bright. You make more and more loans to enterprising Dutch merchants, who repay them promptly and in full. But your luck does not hold indefinitely. One of your usual clients has a hunch that wooden clogs are going to be the next fashion craze in Paris, and asks you for a loan to set up a footwear emporium in the French capital. You lend him the money, but unfortunately the clogs don’t catch on with the French ladies, and the disgruntled merchant refuses to repay the loan.

Your father is furious, and tells both of you it is time to unleash the lawyers. Your brother files suit in Madrid against the Spanish monarch, while you file suit in Amsterdam against the erstwhile wooden-shoe wizard. In Spain, the law courts are subservient to the king – the judges serve at his pleasure and fear punishment if they do not do his will. In the Netherlands, the courts are a separate branch of government, not dependent on the country’s burghers and princes. The court in Madrid throws out your brother’s suit, while the court in Amsterdam finds in your favour and puts a lien on the clog-merchant’s assets to force him to pay up. Your father has learned his lesson. Better to do business with merchants than with kings, and better to do it in Holland than in Madrid.

And your brother’s travails are not over. The king of Spain desperately needs more money to pay his army. He’s sure that your father has cash to spare. So he brings trumped-up treason charges against your brother. If he doesn’t come up with 20,000 gold coins forthwith, he’ll get cast into a dungeon and rot there until he dies.

Your father has had enough. He pays the ransom for his beloved son, but swears never to do business in Spain again. He closes his Madrid branch and relocates your brother to Rotterdam. Two branches in Holland now look like a really good idea. He hears that even Spanish capitalists are smuggling their fortunes out of their country. They, too, realise that if they want to keep their money and use it to gain more wealth, they are better off investing it where the rule of law prevails and where private property is respected – in the Netherlands, for example.

In such ways did the king of Spain squander the trust of investors at the same time that Dutch merchants gained their confidence. And it was the Dutch merchants – not the Dutch state – who built the Dutch Empire. The king of Spain kept on trying to finance and maintain his conquests by raising unpopular taxes from a disgruntled populace. The Dutch merchants financed conquest by getting loans, and increasingly also by selling shares in their companies that entitled their holders to receive a portion of the company’s profits. Cautious investors who would never have given their money to the king of Spain, and who would have thought twice before extending credit to the Dutch government, happily invested fortunes in the Dutch joint-stock companies that were the mainstay of the new empire.

If you thought a company was going to make a big profit but it had already sold all its shares, you could buy some from people who owned them, probably for a higher price than they originally paid. If you bought shares and later discovered that the company was in dire straits, you could try to unload your stock for a lower price. The resulting trade in company shares led to the establishment in most major European cities of stock exchanges, places where the shares of companies were traded.

The most famous Dutch joint-stock company, the Vereenigde Oostindische Compagnie, or VOC for short, was chartered in 1602, just as the Dutch were throwing off Spanish rule and the boom of Spanish artillery could still be heard not far from Amsterdam’s ramparts. VOC used the money it raised from selling shares to build ships, send them to Asia, and bring back Chinese, Indian and Indonesian goods. It also financed military actions taken by company ships against competitors and pirates. Eventually VOC money financed the conquest of Indonesia.