Institutional Economics: The Dutch East India Company

Abstract

The Dutch East India Company, founded in 1602, was one of the first companies in the world and became the largest company in the world in that period. This case offers a historical perspective on the development of economic and financial institutions, which were both critical to, and laid the foundations for, the development of capitalism. The case compares the economic, social, and governmental conditions of the Netherlands and of Spain at that time, and explains why the Netherlands was able to develop these institutions, while Spain was not. The kinds of institutions needed for business to thrive are described. Economic development occurs when the interests of the government and society are aligned.

Excerpt

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institutional economics:

THe Dutch east india company

Jan Coen stood on deck as he watched the city of Batavia slowly disappear from view. It was 1623 and Coen had just resigned his post as governor general of the Dutch East India Company. He felt the warm tropical sea breeze on his face and sighed as he recalled the momentous events of the previous five years. Although his vision of a Dutch monopoly on the spice trade was not yet a reality, his company's victories over England, Spain, and Portugal had turned the tide in favor of the Dutch. As his ship sailed into the Java Sea, he pondered how, over the past century, Holland had grown from a tiny province of Spain into a world power.

The Dutch East India Company (VOC)

In 1594, nine merchants in Amsterdam joined together to organize a trade voyage to the Spice Islands in Asia (Exhibit 1). Over the previous hundred years, Portugal (which was then under the Spanish Crown) had transported spices by ship from Asia to Lisbon. These spices were then sold in Europe and yielded very high profits: but only for the Spanish and Portuguese Crown.

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Keywords: capitalism