The World’s First Stock Exchange 9780231537322

Table of contents :
Contents
1. A World-Famous Book
2. A New Company
3. Early Share Trading
4. Angry Shareholders
5. Fraud
6. The First Boom
7. Jewish Traders
8. Information
9. Trading Clubs
10. Speculation
11. Crisis
12. The World-Famous Book Again
Epilogue
Acknowledgments and Overview of Literature and Sources
Notes
Glossary
Bibliography
Index

Citation preview

The World’s First Stock Exchange

Recto Runninghead

iii

Columbia University Press Publishers Since 1893 New York Chichester, West Sussex cup.columbia.edu Originally published as De bakermat van de beurs, copyright © 2011 Lodewijk Petram. Originally published by Uitgeverij Atlas, Amsterdam English-language edition copyright © 2014 Columbia University Press All rights reserved Columbia University Press gratefully acknowledges the support of the Dutch Foundation for Literature

Library of Congress Cataloging-in-Publication Data Petram, Lodewijk. [De bakermat van de beurs. English] The world’s first stock exchange / Lodewijk Petram; translated by Lynne Richards. pages cm Translation of the authors De bakermat van de beurs. Includes bibliographical references and index. ISBN 978-0-231-16378-1 (cloth : alk. paper) — ISBN 978-0-231-53732-2 (e-book) 1. Stock exchanges—Netherlands—Amsterdam—History—17th century. 2. Stocks—Netherlands—Amsterdam—History—17th century. 3. East India Company—History—17th century. 4. Stock exchanges—History. 5. Amsterdam (Netherlands)—Economic conditions. I. Title. HG5570.A4P4813 2014 332.64'2492—dc23 2013039299 Columbia University Press books are printed on permanent and durable acid-free paper. This book is printed on paper with recycled content. Printed in the United States of America c 10 9 8 7 6 5 4 3 2 1 jacket image: Top: © Getty/Mario Tama. Bottom: Emanuel de Witte, The Courtyard of the Old Exchange in Amsterdam, 1653, Museum Boijmans van Beuningen, Rotterdam. jacket design: Jordan Wannemacher. References to websites (URLs) were accurate at the time of writing. Neither the author nor Columbia University Press is responsible for URLs that may have expired or changed since the manuscript was prepared.

Contents

1

A World-Famous Book

1

A New Company 7

2 3

Early Share Trading

4

Angry Shareholders 51 5

35

Fraud 77

6 The First Boom

100

Jewish Traders

122

7 8 9

Information 143 Trading Clubs 165

Contents

10

Speculation 184 11

12

Crisis

202

The World-Famous Book Again 228 Epilogue 237

Acknowledgments and Overview of Literature and Sources Notes 259 Glossary

275

Bibliography 279 Index 285

vi

245

The World’s First Stock Exchange

A World-Famous Book

1

A World-Famous Book

If one were to lead a stranger through the streets of Amsterdam and ask him where was, he would answer “among speculators,” for there is no corner where one does not talk shares. —joseph penso de la vega, confusión de confusiones

this is not about Wall Street and the area around it, nor is it about the City of London. This is Amsterdam, the Amsterdam of around 1688—more than three centuries ago. It was not long since the great town houses along the rings of canals had been finished, and at night, save for a few flickering lanterns outside the houses, it was pitch dark in the streets and on the canals. On the far bank of the bay known as the IJ—clearly visible from the city—the bodies of condemned felons swung from the gallows. Was this really the place where people were talking about shares on every street corner? It was. And the people of Amsterdam were talking about options,1 too, and forward selling, quotations and prices, risk and speculation—all relating to the trade in the shares of the Dutch East India Company (the Vereenigde Oost-Indische Compagnie, VOC), which had been established in 1602. Fortunes were made and lost, and the men who engaged in this trade were wholly in thrall to it.

1

A World-Famous Book

When the speculators talk, they talk shares; when they run an errand, the shares make them do so; when they stand still, the shares act like a rein; when they look at something it is shares that they see; when they think hard, the shares provide the content of their thoughts; if they eat, the shares are their food; if they meditate or study, they think of the shares; in their fever fantasies, they are occupied with shares; and even on the death bed, their last worries are the shares.2

These quotations come from a remarkable book, Confusión de confusiones (or, in the English translation, The Confusion of Confusions) published in 1688. The writer is Joseph Penso de la Vega, a member of a Jewish family with roots in Spain who, although he was probably born in Amsterdam in 1650, spoke and wrote in Spanish. De la Vega was involved in trade, as so many men were in seventeenth-century Amsterdam, but he was not the typical merchant. In the hours he stole from his sleep, as he put it, he also wrote novels on a range of subjects, plays in verse form, and marriage and mourning odes for prominent Jewish residents of Amsterdam. All his work is remarkable for the unusually flowery Spanish in which it is written. And in one work, his most famous, de la Vega chose a subject that makes his book unique: Confusión de confusiones focuses on the trade in shares in Amsterdam.3 There is no evidence either way to tell us whether Confusión de confusiones attracted much attention when it was published. In the twentieth century, however, as the world’s earliest book on the stock market, it gradually became world famous. A German translation came out in 1919, followed by a Dutch edition in 1939 and an abridged version in English in 1957.4 In the 1980s the book increasingly picked up momentum. As the stock market began to occupy an ever more prominent place in society—and in times of boom and crisis regularly dominated the news—interest in the earliest history of the stock exchange grew. And the only source of that history was Confusión de confusiones. 2

A World-Famous Book

The book’s recent popularity was not caused solely by this interest in history. In 1995 the Financial Times published an article in which the editor picked Confusión de confusiones as one of the ten best books on investment ever written, describing it as a guide for modern investors.5 Every investor should know how the stock market worked in its original and purest form before venturing into current financial markets. And where better to find this than in a book about the world’s oldest stock exchange, created in seventeenth-century Amsterdam? Several new editions have appeared in recent years, but few of them contain the whole of de la Vega’s text. Confusión de confusiones is a bulky book, two-thirds of it devoted to long, rambling digressions into parallels between the Amsterdam stock market and biblical and mythological stories. These tedious sections are usually omitted. So what do the buyers of the slimmed-down editions actually get? There are three characters in Confusión de confusiones. Two of them, a merchant and a philosopher, have heard about the trade in shares and sometimes even watch the traders, but they do not really understand how it works and are afraid to take part in it themselves. They call upon the assistance of an experienced shareholder, the third character. In four imagined dialogues—a popular device for structuring a book in the seventeenth century—the shareholder explains to the others how trading is conducted, tells them about the different types of transactions, and warns them of the tricks and deceptions they must watch out for if they enter the fray. The picture of share dealing that emerges is not always an attractive one. Negotiations over a share transaction could sometimes get quite heated and physical: A member of the Exchange opens his hand and another takes it, and thus sells a number of shares at a fixed price, which is confirmed by a second handshake. With a new handshake a 3

A World-Famous Book

further item is offered and then there follows a bid. The hands redden from the blows (I believe from the shame that even the most respected people do business in such an indecent manner as with blows). The handshakes are followed by shouting, the shouting by insults, the insults by impudence and more insults, shouting, pushes, and handshakes until the business is finished.

He explains that there are many people who prefer to remain aloof from this “battleground” and always use intermediaries to conduct their dealings for them so that they are not “molested” in this way.6 What’s more, the trade in shares is not only rough and coarse but also “the falsest and most infamous business in the world.” The shareholder warns the merchant and the philosopher against a whole raft of frauds that are common in the trade. There are, for instance, brokers who “encourage a friend whose judgment is esteemed, whose connections are respected, and who has never dealt in shares, to sell one or two lots of stock while the risk of loss is borne by the group. The notion [behind this maneuver] is the belief that anything new attracts attention, and that the decision of this person will produce astonishment and will have important consequences.” In other words, his action will lead many people to follow his example. This pushes the price down, and the brokers can buy shares cheaply.7 Undeterred by all this, the merchant and the philosopher decide to take the plunge, with a conspicuous lack of success. At the beginning of the third dialogue the self-pitying philosopher has a tale of woe to tell: “Last night my peace was turned into unrest, my calmness into despair, my awe into mockery, my knowledge into ignorance, my equanimity into frenzy, my respect into abuse. A speculator cheated me; a cheater took me at my word; a betrayer stole my reputation.” He had mixed with brokers, found out the price of East India Company shares, overheard other brokers saying that the share price could well rise further, and become so 4

A World-Famous Book

overconfident that he offered ten points over the price. His bid was snapped up, and straightaway “so great was the noise, the shouting, and the laughter . . . that I blushed, not because of my foolishness, but from fury and shame.”8 The philosopher is swiftly disillusioned: “I know full well that there must be many stockbrokers who, were they not such, would be a model of amiability and a treasure-house of excellence, but let them but come near shares and some Medea or other seems to transform them or a Circe to bewitch them.” When the price takes yet another tumble, the philosopher comes close to despair: “I don’t know what I did, nor what I’m doing, nor what I must do.” Like the merchant, who had also ventured to make a few transactions, he decides to pull out of the trade without delay: “I realize that my intellect is not equal to this tangle, for if the study of it is enough to confound me, just think what would happen were I to embark upon it in earnest.”9 The philosopher doubts that he has a sufficient grasp of the stock market because his intellect is inadequate. And it really did not help that the shareholder who revealed to them how the stock exchange worked did so in a very obscure and roundabout way. In his explanation of options he simply said that “one uses them as sails for a happy voyage during a beneficent conjuncture and as an anchor of security in a storm.”10 Would this have enabled the merchant and the philosopher to understand how an option works and what they could use options for? Things become even more complex and incomprehensible when the shareholder explains that traders can refuse to accept a share by saying that they made “an appeal to Frederick.”11 What sort of cryptic invocation was this—a spell that could seemingly release a trader from all his obligations? To be frank, Confusión de confusiones raises more questions than it answers. It certainly makes it clear that seventeenth-century Amsterdam was gripped by stock market fever and that the traders used all sorts of complicated transactions. But how, 5

A World-Famous Book

exactly, did the stock market work? And how did it develop so quickly after the founding of the Dutch East India Company? This book mines the records of traders who were active in the Amsterdam stock market to tell the real story of the world’s first stock exchange, and at the same time it sheds new light on de la Vega’s famous work.

6

A New Company

2

A New Company

at just before ten in the evening of Saturday, August 31, 1602, the notary Jan Fransz Bruyningh closed the door of his house on Heintje Hoekssteeg behind him. He walked along the narrow alley toward Warmoesstraat and turned left. A few minutes’ walk brought him to his destination, the house of the merchant Dirck van Os on Nes, where two men were waiting for him. Jacques de Pourcq and Anthony van Breen would be assisting him as witnesses. Dirck van Os was one of the directors of the Dutch East India Company (Vereenigde Oost-Indische Compagnie, or VOC), which had been founded earlier that year. When the notary knocked on the door, van Os was sitting with some of the other directors—Isaac le Maire was there, as were Louis del Beecke, Reinier Pauw, and Pieter Dircksz Hasselaer. The bookkeeper of the Amsterdam chamber of the VOC, Barent Lampe, was seated behind an imposing volume with deckle-edged pages and a vellum cover, the Amsterdam chamber’s subscription share register.1

7

A New Company

It had been lying open in van Os’s house all month. The directors had taken turns to oversee the bookkeeper as he entered investors in the register. Saturday the thirty-first was the closing date for subscriptions, and there had scarcely been a quiet moment all day. The recording of the capital had to be finished by midnight, so the men wasted no time in getting down to work to draw up the balance. Under the watchful eye of the notary, the bookkeeper checked each entry and added up the amounts. When he was almost done, Neeltgen Cornelis entered the room. Dirck van Os’s maid had seen investors coming and going all month. Now, at the last moment, she had decided to invest a hundred guilders, for which she had had to work long and hard: her wages were less than fifty cents a day.2 She had been vacillating for days, but now that the book was about to be closed she could not shake off the feeling that something special was happening. Deciding that she would always regret it if she did not act now, she took a deep breath and committed her savings. Lampe recorded her investment and suddenly thought of his own servant. She did not have a cent to her name, but Lampe decided—at just a few minutes to midnight—to pay her a bonus in the shape of an investment in the VOC. The very last entry in the book reads “Barent Lampe for Dignum Jans ____ 50 guilders.” The two final entries were added to the total, and the notary, Bruyningh, embarked on his closing statement in the book. He wrote that he and his two witnesses had overseen how all the amounts in the register had been tallied, that on the stroke of midnight a total sum of 3,674,945 guilders had been subscribed, and that not a nickel or dime had been paid in after twelve o’clock. The statement was signed at twelve-thirty by Bruyningh, his witnesses, and Lampe. The VOC’s share capital, later so actively traded, was in place. 8

A New Company

Tradable Shares Altogether, 1,143 investors subscribed to the initial capital of the Company’s Amsterdam chamber. They had been encouraged to invest by the charter that the States General, the highest administrative body in the Dutch Republic, had granted the VOC on March 20, 1602. This charter was the Company’s deed of incorporation, and it spelled out, among other things, the monopoly it had been granted.3 “All the residents of these lands,” stated article 10, “may buy shares in this Company.” Subscribers could decide for themselves how much to invest: there was no minimum or maximum. There was a note to the effect that very large subscriptions—over 30,000 guilders—would be reduced pro rata if the issue were to be oversubscribed, but that did not happen. There were, though, a few investments that far exceeded this sum. Isaac le Maire, one of the founders of the Company, invested 85,000 guilders. Pieter Lijntgens, a merchant and, like le Maire, originally from the Southern Netherlands, bettered this immense amount: he subscribed 60,000 guilders to the Amsterdam capital and added another 45,000 guilders in Middelburg. Middelburg? Indeed—investors could decide which of the Company’s six chambers to put their money into. There were share registers in Enkhuizen, Hoorn, Delft, and Rotterdam, as well as in Amsterdam and Middelburg. The roots of this situation lay in the Company’s early history. Before it was established, there had been a few groups of merchants who set up temporary enterprises—referred to as the precompanies (voorcompagnieën)—to trade with the Far East. In 1595 the flotilla of the earliest precompany, the Long-Distance Company (Compagnie van Verre), set sail from Texel. The expedition was not particularly successful in commercial terms, but it did prove that it was possible to do business in the East Indies without being overpowered by the Portuguese, who dominated trade with the Orient, so others soon followed suit. Companies with names like the Old Long-Distance 9

A New Company

Company (Oude Compagnie van Verre) and the New Brabant Company (Nieuwe Brabantsche Compagnie) were set up in Amsterdam and elsewhere. Between 1595 and 1602 no fewer than seven flotillas totaling fifty vessels sailed from Amsterdam to the Far East. Another thirty ships set out from Hoorn, Enkhuizen, Rotterdam, Middelburg, and Veere. Not every vessel returned to the Republic of the United Provinces, but those that did were laden with highly profitable cargoes, and the costs of the expeditions were recovered several times over.4 There was fierce competition among these various undertakings, and those involved in them descended to all sorts of underhand tricks, trying to poach experienced ship captains and navigators from one another. The companies countered by making their employees sign contracts promising never to join a rival. The States General was not at all happy with this situation, reasoning that it would profit the Republic’s economy if the different companies stopped competing with one another and took on the Portuguese instead. Even more importantly, the Republic was at war with Portugal. Actually, it was at war with Spain, but because the king of Spain had also acquired the Portuguese crown in 1580, the Dutch were de facto at war with Portugal, too. The States General realized that a strong, united company would benefit Dutch trade with the Far East as a whole and could be deployed to real effect in the war with the Portuguese. It was no easy task to persuade all the existing companies, with their individual interests, to buy into the idea, but in the end they came to an agreement. Prince Maurice, stadholder of Holland and Zeeland, and Johan van Oldenbarnevelt, the Advocate of Holland and the Republic’s top official, did everything they could to make a success of the negotiations, and the States General played on the conscience of the directors of the different companies by contending that they held the key “to destroying the enemy and protecting the nation.” The outcome was a united enterprise, the Dutch East India Company—the VOC—founded on the basis of a 10

figure 2.1 First page of the share register of the Dutch East India Company’s Amsterdam chamber. The entries of the directors Gerrit Bicker, Reinier Pauw, Jan Jansz Kaerel, Jacques de Velaer, Jan Poppen, and Hendrick Buyck can be seen at the foot of the page. Source: Archives of the VOC, inv. no. 7064, fo. 1. National Archives, The Hague.

A New Company

charter from the States General that gave it a monopoly on trade with all the areas to the east of the Cape of Good Hope and beyond the Straits of Magellan. No other body was permitted to conduct trade between the Republic and Asia for as long as the charter was in effect. The Company was divided into six branches, which in Company jargon were called “chambers.” These chambers, unsurprisingly, were located in the towns and cities where the precompanies had been established. All the directors of the precompanies that were still in business at that time also became directors of the VOC; that way everyone was kept happy. It was obvious as soon as the Company was set up that the new enterprise’s center of gravity would be in Amsterdam, but the other chambers—particularly that of the Zeelanders, who were terrified that they would be completely dominated by the Hollanders—were fierce in the defense of their interests. The VOC was consequently organized such that Amsterdam would never be able to gain the upper hand. The governing board of the Company would be made up of directors from each of the different chambers, and their meetings would be held alternately in Amsterdam and Middelburg. This board would have seventeen members— known as the Heren XVII, or Lords Seventeen—and Amsterdam was not allowed to nominate more than eight of them, which meant that this chamber could never decide Company policy on its own. When the subscribed capital was analyzed, however, the actual ratios between the chambers proved different. Amsterdam provided 57 percent of the total capital, followed by Middelburg with 20 percent and the remaining four chambers with considerably less: Enkhuizen contributed 8 percent, Hoorn 7 percent, Delft 4 percent, and Rotterdam 3 percent. It is quite possible that the prevalence of the Amsterdam chamber in the Company’s initial capital would have been even greater were it not for the fact that there had been a serious outbreak of the plague in the city during the summer of 1602, and consequently many people had fled the city. 12

A New Company

Altogether nearly six and a half million guilders was subscribed to the VOC’s initial capital. The purchasing power of this sum today is about a hundred million euros or around one hundred and thirty million dollars.5 This was a large sum for the world’s first public subscription to an enterprise’s share capital, a remarkably high figure, in fact, when we recall that in 1602 the profitability of the VOC was still very much in doubt. Some, but by no means all, of the precompanies had generated high returns, but this did not necessarily mean that an investment in the Company would make money. Added to that, although the share registers were open, no one really had any idea of precisely what the Company was going to do with the money. Obviously, ships would be built and fitted out. But how many? How soon would they put to sea? And what were the new Company’s objectives in the Far East? None of this was at all clear when the capital was subscribed. Then there was the fact that nothing had yet been settled regarding the shareholders’ involvement in setting Company policy. Shareholders in the precompanies had not been able to exert any influence on policy, but those organizations were based much more on personal contacts. The directors of the precompanies had always recruited investors personally, which meant that investors essentially entrusted their money to the individual who was the director, not to the enterprise. This automatically created close ties between shareholders and the business. There were personal dealings between the investors and the men who ran the company, and thus the directors could not avoid giving regular account to the shareholders whose investments they had personally solicited. Things were different in the VOC. The fact that investors came to Dirck van Os’s home in Amsterdam to sign up shows that personal contacts between directors and investors were still the norm—but this time it was a public subscription. All the residents of the country were encouraged to invest. And a charter had been granted to the Company by the highest governing body in the Republic. There could be no doubt that this time the investments 13

A New Company

were being entrusted not to just a group of merchants but to a big business with several branches. This might perhaps explain the investors’ enthusiasm. The VOC was not just a new firm that would send ships to the Orient to bring back spices. It was more than that—this was an enterprise founded by the States General. It had to represent the Republic’s interests in the Far East. To a certain extent it was the Republic. And although the hope of getting a high return would have been many people’s most important motive for investing, the sense that an investment in the Company could help the young Republic would certainly have played a part—in 1602 it had been a mere twenty-one years since the States General had renounced Philip II as king, and foreign powers had still not recognized the Republic as a sovereign state. What was known about the Company in 1602 was only what was set out in the forty-six articles of its charter. It specified, for instance, the administrative relationships among the different chambers and stipulated that the directors would receive a daily wage of four guilders plus a variable payment, 1 percent of the costs incurred in fitting out the ships and 1 percent of the proceeds of the return cargo. The directors were obliged to keep an investment of at least 6,000 guilders in the Company while they held their posts. This figure was 3,000 guilders for the directors from the Hoorn and Enkhuizen chambers. The charter also made it clear that the VOC was not just a commercial undertaking but an enterprise that could serve as an extension of the state. In the Orient the Company was authorized to negotiate with local rulers on behalf of the States General. The other side of the coin was that any captured vessels had to be handed over to the government. There was no explicit description of what would happen to the money that was invested. Some of it would be used to build ships and pay personnel, but this was not all. The thirty-fifth article of the charter stipulated that the Company would use some of the money to construct forts. None of the precompanies had ever built 14

A New Company

a fort in the Far East—they simply bought merchandise and beat a hasty retreat. It was clear that the Company’s strategy was different from that of the earlier firms—it was seeking resilience and a permanent presence in the Orient. This strategy was also evident in the twenty-one-year term for which the States General granted the charter. When Neeltgen Cornelis and Dignum Jans subscribed to the share register, it was assumed that the VOC would be wound up when the charter came to the end of its term in 1623. In the event, the Company existed for much longer—almost two centuries—but compared with the average lifetime of its predecessors, twenty-one years seemed like an eternity. The precompanies usually operated for three or four years. The cargoes were auctioned off when the flotilla returned, and if the ships were still in good condition they were sold to a new enterprise. The accounts were drawn up, and the investors were paid their share of the proceeds. Even if it did take another year or so before everything was settled,6 this was still a good deal shorter than the twenty-one years planned for the Company. If we add to this the fact that personal contact with the directors was much less, it essentially meant that the investors were being asked to put their money into a black box from which it would not reappear for twenty-one years. The authors of the charter realized that this might deter some interested individuals from investing their money, so they included a provision for the interim liquidation of the VOC. After ten years—in 1612—a “general balance” would be drawn up. In other words, the Company would disclose how it was doing, and shareholders would have the option of asking for their money back. At some point between the granting of the charter on March 20, 1602, and the opening of the share registers on August 1, the directors realized that ten years was also a long time. Investors might well be wary of committing their money for such an extended period. On the first page of the share register they therefore included an extra provision: “Conveyance or transfer 15

A New Company

[of shares] may be done through the bookkeeper of this chamber.” The subscribed capital could be transferred to someone else! This had probably also been possible with the precompanies, but never before had it been stated so explicitly in an official document that shares could be traded. This provision meant that investors did not have to wait until 1612 before they could get their hands on the capital they had invested. If they wanted to, they could sell their shares before that. The procedure for doing this was set out on the very first page of the share register. Shareholders had to present themselves to the bookkeeper of the chamber where they had deposited their money, and two directors had to give their approval for the conveyance. The bookkeeper would make “accurate notes” of the transfers “in a special register.”7

The Start of Trading Jan Allertsz tot Londen was the first to dispose of his subscription. On March 3, 1603, he sold a subscription with a value of 2,400 guilders to Maria van Egmont and on that same day a further one for 600 guilders to a Mrs. van Barssum in The Hague. Allertsz’s name suggests that he was a Londoner, but that was not the case. He came from a family of bargemen that operated between Amsterdam and London; “tot Londen” was a sort of nickname.8 Why would he have wanted to sell his investment so quickly, even before the first Company ship put to sea? The explanation is simple: Allertsz did not have the money. During the subscription period in August 1602 the investors had not arrived at Dirck van Os’s home on Nes with bags full of gold and silver coins. All they had done was promise to make an investment. By signing their names, Neeltgen Cornelis, Jan Allertsz, and all the others had undertaken to produce the sum concerned in the future. The charter stipulated that this had to be done in three installments; this was later changed to four. The dates coincided more or less with peaks 16

A New Company

in the Company’s capital requirements. This meant that the Lords Seventeen called in part of the subscribed capital shortly before a new flotilla was to be fitted out. This happened for the first time on February 25, 1603, when the Lords Seventeen requested payment of 25 percent of the subscribed amount. Six days later, Allertsz disposed of his subscription. The bargeman evidently could not afford 750 guilders at the beginning of the sailing season. Yet Allertsz did make a profit from his subscription to the Company’s initial capital in August because the price of the shares had risen in the interim. No price is known for March 1603, but the following month investments in the VOC were traded at a price of 106.5, expressed as an index figure where the value of investments in 1602 was set at 100. When the price in April 1603 stood at 106.5, the shares had risen in value by 6.5 percent. An index figure as a price might seem rather strange. Currently, the price of a share is always quoted in euros, dollars, yen, or another currency, but at that time this was the only way to quote the value of Company shares because a VOC share had no fixed size. Neeltgen Cornelis had a share of a hundred guilders, and Dignum Jans had one of fifty guilders. Isaac le Maire owned a share of 85,000 guilders, and Pieter Lijntgens had one of 60,000 guilders and another of 45,000 guilders in Middelburg. This meant that the value of a share could only be expressed relative to its original or nominal value, namely, the value when the share register was closed in August 1602. At a price of 106.5, a share of 3,000 guilders in the initial capital of the Amsterdam chamber was now worth 3,195 guilders. But, of course, Allertsz did not get 3,195 guilders from these transactions because he had not yet paid a single cent. The price was primarily of importance in regard to shares that were already partially paid up. There were already a couple of these in March 1603 because investors could always pay their installments earlier. This was even encouraged by the directors, who paid interest on the sum deposited to those who paid early. 17

A New Company

Allertsz would have received a payment of between nothing at all and 195 guilders; there is no record of any exact sum. What Maria van Egmont and Mrs. van Barssum were paying him for was the right to be allowed to invest in the VOC. This is not as strange as it may seem. No ships belonging to the Company had left for the East Indies, and there was no prospect any time soon of flotillas returning with cargoes of spices and other exotic goods. But it is likely that some people did not develop an interest in an investment in the Company until after subscriptions closed. The share register of the Amsterdam chamber had only been open for the month of August and only in Dirck van Os’s home. The dates on which investors signed up reveal that that the process did not really gain momentum until the end of the month. It would appear that the enthusiasm of the first subscribers was infectious, and more and more people decided to invest money. It is possible that there were still plenty of people who wanted to subscribe after September 1, but they would have found the door of Dirck van Os’s residence on Nes closed. This also explains why the price of Company shares rose above 100 immediately after September 1. The demand for investments in the VOC exceeded the supply, and so the price went up.

East India House (Oost-Indisch Huis) There were a further eight transactions in March 1603. The bookkeeper recorded another three the following month, and after that it really took off, with forty-four transactions in May. The sellers were all subscribers who disposed of their investments now that the time to pay up was approaching. Meanwhile, Dirck van Os’s house had ceased to be the provisional Company office. Traders who wanted to transfer shares had to go to the Bushuis (the city arsenal) on Kloveniersburgwal. Such urban arms depots were 18

A New Company

common in the Netherlands in the sixteenth and seventeenth centuries. The Bushuis stored the city’s armaments until the VOC moved in. By then Amsterdam’s rapid expansion had flowed around it; it was no longer on the outskirts, as is clear from Pieter Bast’s map of 1597. A new residential neighborhood had been built immediately opposite the Bushuis, and the presence of a weapons and ammunition store in the middle of an urban district represented a major risk. There was still a fear of serious fires even though no timber buildings had been constructed for half a century. The arsenal was relocated. Initially, the Company rented only a part of the Bushuis. Meanwhile, construction of a new armaments warehouse started, and when this building at 423 Singel (currently used by the university library) was completed, the Company took over all of the old Bushuis on Kloveniersburgwal. By then the directors had already foreseen that the Amsterdam chamber would need even more space. As well as offices, after all, the Company also had to have storage capacity for ships’ supplies and stocks of food for long sea voyages. And once the first flotillas returned from the Indies, there would also be cargoes of spices and other merchandise that had to be stored temporarily. Construction of new premises immediately behind the Bushuis was swiftly begun on land that had been the orchard of the former St. Paul’s Monastery (Paulusbroederklooster). The monastery had been the property of the city since 1578, when Amsterdam sided with the Protestant rebels, an event known as the Alteration of Amsterdam. The church building was assigned to French protestant refugees from the Southern Netherlands—even to this day it is known as the Walloon Church—and the orchard was sacrificed for the Company’s new premises: East India House. The building was completed in 1606 and had space for the offices of the Amsterdam chamber of the VOC. The directors met there, the bookkeeper had his office there, personnel were taken on, and in the years that it was Amsterdam’s turn, the Lords Seventeen met there. 19

A New Company

figure 2.2 East India House on Oude Hoogstraat. The Bushuis is on the left, parallel to Kloveniersburgwal. Source: Olfert Dapper, East India House, 1663. Amsterdam City Archives, Amsterdam.

East India House still stands and has been used by the University of Amsterdam for some decades. It has no frontage on the street, so it is easy to walk past without knowing that it is there. From Oude Hoogstraat, it is hidden behind the façade of a later extension of East India House. There is a small gate in this wall, leading to a courtyard. The remarkable façade of East India House can be seen from the courtyard, which nowadays is only used by students to get to the bicycle sheds. It was designed by Hendrick de Keyser in Dutch Renaissance style, with many light-colored elements amid the red brickwork. De Keyser was both an architect and a sculptor, as the many sculpted male and female heads above the windows attest. Amsterdam was once full of buildings in Dutch Renaissance style, but most of them were remodeled at some point to keep up with fashion. East India House remains a magnificent, unspoiled example of this architectural style. 20

A New Company

There is still a building on Kloveniersburgwal called the Bushuis—also used by the university—but this is not the midsixteenth-century Bushuis where the first transactions in Company shares were registered. The current building replaced the old Bushuis at the end of the nineteenth century.

Administration When Jan Allertsz and the two ladies reported to the bookkeeper of the Company’s Amsterdam chamber to register officially the transfer of Allertsz’s shares, they had to go to the Bushuis. A rather laborious procedure had been established for such transfers: the buyer and the seller (or their authorized representatives) had to appear together before the bookkeeper, and two directors had to approve the transfer before it became official. These administrative steps were necessary because the VOC did not issue bearer shares. Shareholders themselves had no written proof that they owned a share in the Company. The so-called world’s oldest shares uncovered in Dutch archives from time to time, which always attract a great deal of national and international media interest, are in fact little more than receipts, or recepissen, as they were called in seventeenth-century Holland. The “share” in the Enkhuizen chamber that was found in 2010 in the Westfries Archief, for example, shows that Pieter Harmensz paid the last installment of his subscription amounting to 150 guilders. The Amsterdam share dated September 27, 1606, which was probably stolen from the Amsterdam City Archives during the 1980s and played a starring role in the movie Ocean’s Twelve, is the receipt for the last 400 guilders of a total investment of 4,800 guilders by Agneta Kocx. The share currently belongs to a group of German investors, who in 2004 announced that they were prepared to sell it for the astronomical sum of six million euros.9 The share shown here was the receipt dated December 8, 1606, for the remaining 21

figure 2.3 Dirck Pietersz Straetmaker’s “Dutch East India Company share,” 1606. Source: Collection of the Capital Amsterdam Foundation, Amsterdam.

A New Company

fifty guilders for a share of 600 guilders in the Hoorn chamber, paid by Dirck Pietersz Straetmaker. It was convenient for Pieter Harmensz, Agneta Kocx, and Dirck Pietersz Straetmaker that the folio numbers of their accounts in the VOC ledger were recorded on their receipts. It made it quick and easy to trace their accounts when they went to the Company’s office to transfer a share or collect a dividend payment. All three of them made notes for their own records on the dividend payment receipts. But they could not trade their receipts, which were certainly not valid proof that they owned shares in the VOC of 150, 4,800, and 600 guilders, respectively. The text of the receipt makes this plain. The recipients of such documents were recorded in the ledger as owners of shares. Only a positive balance in the ledger of the Company’s capital accounts was valid proof of ownership of a share. It was also important for the Company to know precisely who owned what. This was because the original plan was that the shareholders would be able to ask for their investment to be returned after ten years, and of course the Company needed to know how much had to be paid out. It was the same story with dividend payments. Article 17 of the Company’s charter stated that it would pay a dividend each time goods with a value of 5 percent of the initial capital were brought to the Republic. This stipulation went by the board, however, as we shall see. The Lords Seventeen paid a dividend when they considered the time was ripe, and the first time that happened was in 1610, eight years after the initial subscription. The dividend to which shareholders were entitled was based on the nominal value of their investments, and it was therefore important that the bookkeeper, Barent Lampe, always had accurately updated information about the share ownership of all shareholders. Lampe consequently kept two books—a journal and a ledger. Only the journals for the first ten years of the Amsterdam chamber have been preserved; the ledgers from 1628 to the end of 23

figure 2.4 Entries in the capital accounts of the Amsterdam chamber of the Dutch East India Company (VOC). These are the accounts of Jan Jansz Corver, Anthony van Surck, and Sacharias Roode. The share transfers can be seen on the left and the dividend payments on the right. Source: Archives of the VOC, inv. no. 7068, fo. 376. National Archives, The Hague.

A New Company

the Company in 1798 have survived. They are part of the VOC archive in the National Archives in The Hague. Lampe noted all transactions in the journal—one on each line—in the sequence in which the share traders appeared before him. He then transferred the information from the journal into the ledger. In the ledger every shareholder had his or her own account in the form of a balance. Lampe took the initial balance of these accounts from the share register. This was put on the credit (right-hand) side of the balance. If a shareholder sold a share, his or her account was debited by the amount concerned. And if he or she bought a share, the account was credited. This tells us that the ledger was kept from the perspective of the Company. If someone purchased a share, they received a claim on the Company, and the bookkeeper therefore recorded this transaction as a credit entry. This system is comparable to the way in which banks currently maintain statements for their account holders. The bookkeeper had to be paid sixty cents for each transaction. The buyer and seller paid half of this fee each. The purchaser also received a transcript from the transaction book, for which 1.20 guilders in stamp duty (a city tax) had to be paid. The stamp duty on the transfer of a share with a nominal value greater than 1,000 guilders was 2.40 guilders.10 If someone without an account in the ledger bought a share, Lampe opened a new account for them. There was no particular procedure in place in regard to shareholders who sold their entire holding in the Company, but an account was not recorded for them in a new ledger when the old one was full. The share accounts were on the left-hand pages in the ledgers. The bookkeeper recorded how much dividend had been paid out on the shares on the right-hand pages. When the Lords Seventeen decided in their 1625 annual meeting to pay a dividend of 20 percent of the share capital, for example, this meant that someone who owned a share of 1,000 guilders could then come to East India House and collect 200 guilders from the chamber where the money had been invested. They could do so whenever they 26

A New Company

wanted. No period was set within which dividends had to be collected, and shareholders could decide not to collect the dividend at all. It was consequently essential for the bookkeeper to keep very accurate records of how much dividend had been collected on each share. This was also important when it came to trading. A share that still entitled the holder to the payment of a certain dividend was, needless to say, worth more than a share on which all payments had already been collected. Dealers who were in the bookkeeper’s office to receive a transferred share always consulted the right-hand page of the capital book to check how much dividend had already been paid out.

Warmoesstraat, New Bridge, St. Olaf’s Chapel The VOC’s capital accounting was the backbone of the trade in shares, but trading itself did not happen in East India House. It was always possible, of course, that dealers would encounter one another in East India House and reach an agreement about a transaction while there, but this was an exception rather than the rule. Most share trading was done in places in the city where many merchants gathered. No one—the Company or anyone else—had designated these places; it was just a custom that had grown. Amsterdam merchants already owned much of the capital in the Amsterdam chamber as a result of the subscriptions in 1602, and they were not deterred by the idea of trading their shares. After all, they were doing deals on commodities day in and day out, and these transactions often involved very substantial sums of money. The commodities merchants gathered at the same place every day. Well into the sixteenth century it was Warmoesstraat, where many of the major players, including Lijntgens, lived. They had only to step out of their houses to meet other merchants and do business, and this in turn drew businessmen from other parts of the city. As Amsterdam became more important as a center of 27

A New Company

figure 2.5 The Bushuis (arsenal) on Kloveniersburgwal on what was then the edge of the city. Part of the city wall can still be seen in front of the Bushuis. The first houses of a new district are shown opposite Kloveniersburgwal. On this map north is at the bottom. Source: Pieter Bast, Map of Amsterdam, 1597. Amsterdam City Archives, Amsterdam.

commerce and more and more merchants settled there, the trading between dealers on the street became a problem. At this time Warmoesstraat was still an important transport artery, and the porters with their handcarts encountered the greatest difficulty in worming their way through the throng of wheelers and dealers. The city council realized that things could not continue like this, and in 1561 it designated New Bridge as the place for trading. New Bridge is the northernmost bridge over Damrak, where currently trams coming from Damrak enter the loop that 28

A New Company

figure 2.6 Map of Amsterdam dating from 1597. The details (figs. 2.5 and 2.7) show places important for share trading. Source: Pieter Bast, Map of Amsterdam, 1597. Amsterdam City Archives, Amsterdam.

brings them to Central Station. In the seventeenth century, one could see the IJ from New Bridge. Central Station stands on an island that was not constructed until the nineteenth century. The dock where ships landed their goods was some way away, but—and this was just as important to the merchants— the captains brought the international post to New Bridge. 29

figure 2.7 The places where shares were traded in the early seventeenth century. The wide body of water in the center is the Damrak. The arrow on the right points to the New Bridge. On the right of the bridge is the Paelhuysgen. Nieuwebrugsteeg is on the left of the bridge. The first side street is Warmoesstraat. St. Olaf’s Gate stands at the intersection, and St. Olaf’s Chapel can be seen a little way further along near the center arrow. By following Warmoesstraat to the south (at the top on this map) you would find the office of the notary Jan Fransz Bruyningh in Heintje Hoekssteeg, the third side street on the left. The large church building on the extreme left is the Oude Kerk. Source: Pieter Bast, Map of Amsterdam, 1597. Amsterdam City Archives, Amsterdam.

A New Company

Letters from the Baltic, England, and all the other areas that Amsterdam traded with were delivered to the Paelhuysgen, a small building on the western side of the bridge. A few dozen yards away, on the eastern side, the businessmen gathered to do their deals. There they had the latest news from overseas and could put the information to immediate good use in their trading. The trouble was that all this went on in the open air. On fine summer days that would not have mattered, but when a cutting wind came off the IJ and chilled the traders to the bone, they sought shelter. They found it under the awnings of the shops on Warmoesstraat, so when it was cold and wet they still obstructed the traffic. In a bid to alleviate this problem, in 1586 the authorities allowed the merchants to use St. Olaf’s Chapel, a stone’s throw from New Bridge, when the weather was inclement. This chapel had also become city property at the time of the Alteration, and it was no longer used for religious purposes because Catholics were banned from practicing their faith in public. Thus the city council was free to allocate it to the commercial community. St. Olaf’s Chapel, currently used by the Barbizon Palace Hotel as a conference center, thus became Amsterdam’s first stock exchange building—although it was not just shares that changed hands there. The great majority of the trade was in timber, salt, and grain. These goods had to be paid for, so the merchants also concluded their financial deals there. There were loans, of course, and to pay for transactions there were also bills of exchange and cashiers’ drafts—the early modern form of checks. The trade in VOC shares started in 1602. It was the concentration of businessmen that drew this new form of dealing to this spot. The best chance by far of finding someone who wanted to buy or sell a share was on New Bridge or in St. Olaf’s Chapel.

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Returns Jan Allertsz was not the only person who sold his investment in the Company as soon as the first installment had to be paid. There is a clear pattern in the share transfers shortly after the Company was set up, with marked peaks at moments when the directors called up capital. And it was not just small investors who could not come up with the installments and were obliged to sell their shares. Even Pieter Lijntgens, the man who signed up for 105,000 guilders, never paid for his investment in full. He was able to manage the first installment in 1603, but only because he came to an arrangement with the directors. When the second installment was called up in the spring of 1605, however, Lijntgens could not scrape the money together, and he sold half of his subscription. He was given little time to save up for the third installment because it was called up later that same year. This prompted him to sell his entire investment. Was his subscription of 105,000 guilders somewhat too ambitious, even for a rich merchant like Lijntgens? With hindsight it obviously was, but when he signed up for the initial capital, the successes of the precompanies were still fresh in Lijntgens’s memory. These companies had usually paid the first dividend after only two years. And those dividends had been substantial. Lijntgens probably thought that he would be able to use the first dividend to pay most of the second installment, which was called up two years after the first. He wanted to finance his investment with the returns on that same asset. But his scheme failed. Despite the stipulation in its charter that the VOC had to pay a dividend if goods worth 5 percent of the initial capital were landed in the Republic, it took much longer before the first dividend was actually distributed.11 In 1602, Lijntgens and all the other subscribers who were unable to pay their installments had probably not understood the

32

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implications when the Company was set up for a much longer period than the precompanies. When the first flotilla returned, the directors did not pay part of the proceeds to the shareholders immediately. This was because the Company had a long future ahead of it. More vessels had to be sent to the East, and investments in trading posts were needed. All of these first profits were plowed back into the business. Lijntgens’s sales transactions were recorded in the Company’s books, but unfortunately the bookkeeper never noted down the price at which the shares were traded. No other documents about these deals have survived, so we shall never know how much Lijntgens was able to get for his holding. Would he have made a profit? Nothing is known about the share price in the fall of 1605, but earlier in the year it had fluctuated around 105 to 106. The price was probably a bit lower after the summer as a result of the enforced sale of shares by people who were unable to find the money to respond to the call for capital. In view of the size of his sale, it is quite possible that Lijntgens had to accept less than the market price. If we assume that he was able to sell his shares at 104, the return on his investment (he had had to pay 25 percent of his subscription two and a half years before and a further 33.3 percent a year before the sale) would have been about 2.5 percent per year. That was very low, particularly if you consider that during this period merchants had to pay some 8 percent interest for credit. In the meantime Neeltgen Cornelis, Dirck van Os’s maid, had also disposed of her holding. In October 1603 she sold her hundred-guilder subscription to a familiar name: Jacques de Pourcq, one of the notary’s witnesses on the evening the share register closed. Like most of the others who sold their share at this time, Cornelis probably did not have the money to pay the installments on her subscription.

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Dignum Jans’s subscription, on the other hand, was paid in full. She sold her fifty-guilder share to Nanning Claesz de Witt on October 5, 1610.12 What would her reason to sell have been? Did she need the money—de Witt probably paid her about sixty-five guilders—to make ends meet? Or was it perhaps that she did not know what to do with the consignment of mace she was entitled to collect from East India House?

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Early Share Trading

3

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antoine l’empereur had been fascinated by the trade with the Far East since the time of the first precompanies, and his interest became professional once he started to deal in silk. He tried to keep a close eye on the East India Company’s activities, but there was a problem: L’Empereur lived in Leiden, a town without a Company chamber. Amsterdam is not that far from Leiden, but a quick trip there and back was not easy in the early seventeenth century. Fortunately he had a nephew who lived in Amsterdam, Jacques de Velaer Jr., who was often at New Bridge, and he would pass on the price of silk and news about the Company to his uncle. At the end of 1608, l’Empereur wrote that he might be interested in buying a share in the East India Company and asked his nephew to keep him better informed about the share price from then on. De Velaer was only too pleased. He was hoping that his uncle would decide to buy a share, because then he would be able to charge a percentage of the purchase price as commission. Relation or not, he still needed to earn money. On December 10, 1608, he wrote his uncle that the share price was 130 to 131. 35

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According to de Velaer, this price was “low,” and “many people are now deciding to buy shares.” At the same time, he did not want l’Empereur to hold him accountable for his investment advice later on, so he added, “time will tell what the share price will do.”1 L’Empereur did not respond straightaway, so de Velaer decided to be a little less circumspect in his investment advice. “In my opinion it can do no harm to buy a share now. It is probable that the share price will rise sharply.”2 When l’Empereur still did not reply, de Velaer wrote on January 7, 1609, “if you are thinking of buying a share, I would advise you to do it now. No drop in the price is expected. A large jump in the value seems more likely. Time will tell, but the rate is now around 132 to 133.”3 L’Empereur was persuaded. He asked his nephew to buy a 3,000-guilder share for him and to pay no more than 134. Adding that he might want another share, he said he would wait for a while because he did not want to overdo it, and he asked his nephew to keep him abreast of everything relating to the Company’s shares.4 As soon as he received the letter, de Velaer set to work to carry out his uncle’s request “at the best possible price for you.” He had little trouble finding someone on New Bridge who wanted to sell, and after brief negotiations he bought a share from Antoni Wachtmans at a price of 130. The men did not go to East India House there and then to arrange the official transfer because de Velaer had first to organize the money for the purchase. Fortunately, it did not take long. He borrowed the purchase price (3,900 guilders) from a businessman on New Bridge. The interest on this loan was 8 percent. De Velaer told Wachtmans that he had the money, and together they went to East India House, where on January 12, 1609, the bookkeeper, Barent Lampe, transferred the share to de Velaer’s account.5 De Velaer wrote his uncle that the price of 130 “was a very good rate.” In fact, he said, l’Empereur had already made a profit. “No shares have been on offer at this low price for a long time, 36

Early Share Trading

and the rate is already a point or a point and a half higher. May the Lord bring you success and profit in this venture.”6 A couple of months later, de Velaer charged his commission as part of his uncle’s half-yearly statement of account: 1 percent of the nominal value of the share (30 guilders).7

Inadequate Information L’Empereur’s transaction was remarkable, to say the least. He had to pay 8 percent interest on the loan he took out to finance the purchase and a further 1 percent commission to his nephew. This meant that he had to be expecting a return of at least 8 percent on the share. On what did l’Empereur base this expectation? In previous years, East India Company shares had come nowhere close to producing a yield of 8 percent, nor had l’Empereur received any news to suggest that the future of the Company suddenly looked very promising. On the contrary, all he knew was that his nephew de Velaer predicted that the price might very well rise significantly. The correspondence between them reveals that this forecast was based on nothing more than a hunch. Was this the way people made investment decisions in the early seventeenth century? Fortunately, other letters in the correspondence between l’Empereur and de Velaer have survived, and they paint a clearer picture of the perceptions of share dealers during this period—just under ten years after the Company was founded. Antoine l’Empereur, or l’Empereur d’Oppijck in full, was born in 1563 in Tournai, in the Hainaut region. Like so many Southern Netherlandish merchants, he had fled to the Republic during the Revolt, but he had lived in many other places before that. He went into business as a merchant in Lier and later in Antwerp. He probably fled from there during the siege of the city (1584–1585) or shortly after it was taken in 1585 by Alexander Farnese, later the duke of Parma. This brought Antwerp over to the Spanish side in 37

Early Share Trading

the Revolt, and it was no longer a good place for a Calvinist like l’Empereur. At the end of 1585, l’Empereur turned up in Bremen, where he married Sara van der Muelen. The couple lived in Cologne, Frankfurt, and Danzig (now Gdansk) before they moved to the Republic. They did not stay long in the same place there either. Initially they settled in Utrecht before moving to Leiden. L’Empereur eventually died in The Hague in 1637. L’Empereur had good reason for living in so many places. Through his marriage he had joined a close network of merchant families. Besides the van der Meulens there were the Malapert, de Latfeur, de la Faille, and de Velaer families. They had all come originally from the Southern Netherlands, and they were allied by many marriages. The widespread network this created was a great asset to their trading business. A member of one of the families was posted to all the important European commercial towns and cities to represent their interests. This is how it came about that l’Empereur had relatives in Amsterdam, one of whom was very much involved in trade with the East Indies. Jacques de Velaer Sr. was one of the founders of the Brabant Company (Brabantse Compagnie), and when it became part of the VOC he automatically became a director. This was fortunate for l’Empereur, because he could get information about the Company straight from the horse’s mouth. But de Velaer Sr. was not much of a letter writer. For example, although he had been personally involved in setting up the Company, he wrote no more about it to l’Empereur than that it was decided to have a ten-year account so that “it will be possible to do steadier and better business.” He would give him a more detailed explanation when he next saw him, because it was “too much to write down.”8 This tells us little about the early years. It is not even clear whether l’Empereur subscribed to the initial capital of the Amsterdam chamber. Jacques de Velaer committed to 57,000 guilders in the share register, and it seems highly likely that part of this sum would have come from l’Empereur and other family members, but we cannot be sure. 38

Early Share Trading

In 1608, the correspondence started to get more interesting. L’Empereur asked for—and got—more information, but no longer from de Velaer Sr. Now the letters were sent by his son, Jacques de Velaer Jr. This correspondence soon reveals where l’Empereur’s interests lay. His primary focus was the trade with the Orient. He wanted to be told, for instance, about the cargoes of silk coming in from the East Indies and the price of silk on the Amsterdam market. And he was interested in other Far Eastern goods too. How much was a pound of pepper fetching in Amsterdam? And nutmeg? The letters always contained other financial news, too, such as the Hamburg and London exchange rates. There was barely any mention of family news, although of course the letters contained the standard courtesies (“my regards to your wife”— l’Empereur was married to de Velaer Jr.’s aunt), and very occasionally de Velaer ended with a brief remark about family worries. In his letter of September 16, 1612, for example, he mentioned in passing that his son had suddenly collapsed and died as they were walking from Diemen to Amsterdam. The main theme, though, was always the latest commercial news. And de Velaer was in a good position to provide it. He lived on Oudezijds Voorburgwal, close to the spots where merchants traded. He went to New Bridge regularly and always knew the latest economic news. L’Empereur could not have wished for a better source. De Velaer heard all the gossip that was circulating among the merchants and dealers, and, as the son of a director, he had good contacts inside the Company. Despite all this, when his uncle let it be known he was interested in acquiring a VOC share, de Velaer could not say much more about the shares than that his feeling was that the price was on the low side and could increase. So was there nothing else to report about Company shares? Yes, there was. The Dutch Republic had been negotiating a truce with Spain since 1606, and in January 1609 it began to look as though the negotiations would succeed. As a rule peace is good for trade, but this was not so in the case of the Company, 39

Early Share Trading

which actually owed its very existence to the war with Spain. The Republic could ignore the Treaty of Tordesillas (1494), in which Pope Alexander VI authorized the division of the world’s oceans between Spain and Portugal, as long as there were hostilities with Spain. In peacetime, though, things were trickier. A truce could even have meant the end of the road for the Company.9 Would l’Empereur have known that the continued existence of the VOC was one of the Dutch negotiators’ starting points? Possibly. It was, after all, widely known that Johan van Oldenbarnevelt, the Advocate of Holland, who naturally played a leading role in the negotiations, had been a strong proponent of setting up the Company. But was trade with the Far East so important in his perception that he would risk letting a truce fail because of it? In fact, the Republic’s negotiating position was very strong, not least because of Mare liberum (The Free Sea), a book written by the celebrated Dutch jurist Hugo Grotius at the VOC’s request. Arguing that countries had no right to own seas and oceans, the treatise rejected the claims of Portugal and Spain on legal grounds. Besides, Spain’s finances were in dire straits; it had a lot at stake. The terms of the peace that was eventually agreed, known later as the Twelve Years’ Truce (1609–1621), were very favorable to the Republic. Spain was able to extract an agreement that the Republic would not set up a West India Company for trade with North and South America, but the Dutch East India Company could continue its activities as before. The terms of the truce must have come as a great relief to the Company’s shareholders, which makes it curious that de Velaer barely referred to the matter in his letters to his uncle. At the end of February 1609 he made a brief comment to the effect that the chance of reaching agreement had receded, but two weeks later he reported that the truce had finally been signed and sealed.10 That was all. Did l’Empereur have another source from which he obtained such news? Or was he just not interested in this sort of information? 40

Early Share Trading

At this time, it was very difficult for share dealers to get good information because all sorts of things were kept secret. There were probably only vague rumors about the diplomatic negotiations between the Republic and Spain—rumors that were so unreliable that de Velaer did not even bother to pass them on to his uncle. And it was probably even more of a challenge for traders to get intelligence about the Company. It gave its shareholders no feedback whatsoever about its financial position or its operations in the East Indies. Investors consequently had to look to other sources of information if they wanted to find out what the Company was up to. There is a splendid illustration of this in the correspondence between de Velaer and l’Empereur in the spring and summer of 1610, when de Velaer told his uncle about the gossip circulating on New Bridge. Rumors were flying about the return of the Company fleet. “News from Zeeland reached us yesterday,” wrote de Velaer to l’Empereur on May 25, 1610. The news had come from England— Plymouth, to be precise (or Pleijmuijden, as the Dutch called it in those days)—where a vessel that had sailed with the returning VOC fleet as far as the forty-fifth degree of latitude had arrived. The English vessel was faster than the Dutch East Indiamen and had reached its destination before the Company’s ships got to the Republic. The crew said that the flotilla consisted of four ships, the “Gelderlant, Bantam, Seelant, and Banda or Delft”—they were evidently unsure of the name of this last vessel—and that they were full to the gunwales with cargo. There was nothing in this message about the nature of the cargo, and the fact that five ships’ names were referred to for only four vessels also prompted doubts as to its reliability. But this was all the crew knew. They also had news about two Dutch admirals. Admiral Paulus van Caerden had been taken prisoner “after a major action,” and Admiral Pieter Willemsz Verhoeff and some of his men had been “most treacherously murdered” after he had constructed a large fort in Bantam and had shown “much friendship” to the local population.11 41

Early Share Trading

It was by no means certain that all this news was accurate. De Velaer continued to frequent the places in Amsterdam where shares were traded, and two weeks later he wrote that “the tidings continue and are believed.” No further news had arrived to contradict the rumors about the admirals, and the merchants now assumed they were true. However, some new gossip about the returning flotilla had filtered through to Amsterdam. It too came from the English ship in Plymouth. Two further vessels, Banda and Patania, were underway to the Republic laden with wares from the Moluccas: cloves, mace, and nutmeg. They had commenced the voyage shortly before the Bantam, the English merchantman, had left. The fact that the East Indiaman Banda was referred to again indicated that the information had become muddled at some point between Plymouth and Amsterdam. The flotilla of four ships had still not arrived in the Republic, and de Velaer did not yet have any information about their cargoes. All the same, he did have intelligence about these vessels. The winds were not favorable, and they were making barely any headway. This might well have referred to the Gelderlant, which had already had a dramatic voyage. She had been at sea for eleven months, and many of the crew had died.12 What could l’Empereur do with this information? It was good to know that six vessels were on their way, but he knew next to nothing about the cargo. Would it exceed earlier expectations? Or exactly the reverse? This was of the greatest significance for the share price, but on the basis of the available intelligence l’Empereur was not yet in a position to make an assessment. There were also doubts about the reliability of the news because of the way it had arrived. Why, for instance, did the second part of the information not reach the stock exchange until over two weeks later? There was a great deal of uncertainty, but l’Empereur saw no reason to dispose of his share. It was a long time before de Velaer again relayed news to his uncle. He did not write until the last two ships had arrived. 42

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“I have heard nothing but good news about how things are going in the East Indies,” was his comforting message. The merchantmen had brought pepper, nutmeg, mace, cloves, silk, and porcelain. It was hoped that Ternate (one of the Moluccas) would be conquered, and the Dutch had entered into an alliance with Japan. The Company representatives had received a warm welcome from the Japanese, and they had managed to get permission for the Company to trade “throughout the entire country.” The share price had as yet barely responded to all this news, and de Velaer thought that this could be a very good moment to buy a share. “Don’t hesitate!”13 But l’Empereur did hesitate. He wanted to know more, to be more certain, before he was prepared to make a further investment in the VOC. De Velaer responded by writing, “You are asking me for much too much information about trade with the Orient, much more than I can give you.” Slowly but surely, de Velaer was becoming rather testy about his uncle always asking for information but never giving instructions to buy or sell. It meant he was making little or no money. He was no longer prepared to write extensive reports about the Company and would only pass on “what I hear.”14 Would there have been share dealers who did have the intelligence that l’Empereur was asking for? The directors themselves were probably somewhat better informed. They knew the state of the Company’s finances. All the indications are that financial data were kept securely inside the organization and that even de Velaer Jr., a son of one of the Amsterdam directors, and his uncle were not privy to them. The directors probably knew more details about the returning flotilla and the situation in the East Indies thanks to confidential Company mail—the letters that Company officials in the Far East sent to their superiors in the Republic. The problem, though, was that it always took a long time before this news was made available. This was because the letters arrived together with the flotilla, and by the time they reached the 43

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Republic merchants had already gleaned a good deal of information about the East Indiamen from other sources, such as English sailors who had come back from the Orient in faster ships. And once the Company’s vessels reached Dutch ports, it did not take long for the share traders to find out what was in the letters. The seamen also knew what was happening in the East Indies, and as soon as they could they told anyone who would listen. The inadequate information that l’Empereur read in his nephew’s letters was likely the best available.

Dividend Paid in Spice Despite the very limited supply of information about the Company’s activities, there were nevertheless investors who wanted to own shares. This was because shareholders expected the East India Company to pay big dividends. After all, the precompanies— which were the only point of reference—had done that. After the arrival of a flotilla, these companies always paid out the proceeds from the cargo to the shareholders without delay. In some cases the cargo itself was used as a dividend. Shareholders would receive a parcel of pepper, nutmeg, or some other product that had been brought back from the Far East. It made perfect sense for the precompanies to pay out the proceeds to the shareholders immediately, because these were businesses that only existed for the duration of an expedition to the Orient. Once the vessels returned, the only things left to do— winding up the enterprise and dividing the company’s proceeds among the shareholders—never took long. Initially, shareholders in the VOC expected that the profit sharing would take place along the same lines. According to the Company’s charter, the Company always had to pay a dividend if goods with a value of 5 percent of the initial capital were brought to the Republic.

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But that was not how things turned out. The VOC ignored the stipulation about dividend payments. Shareholders saw East Indiamen returning, but for the time being they did not receive a cent; the Company’s policy was focused on its own continuation and in establishing an enduring presence in the East Indies. The money earned on the first cargoes to arrive was put right back into the business. These days it is not considered strange for newly established firms to pay out little or nothing in the form of dividends. These enterprises badly need the finance for growing their activities. Even if companies generate substantial returns, they sometimes hold back when it comes to paying dividends. Google, for instance, tells its investors with barely concealed pride that it has never paid out a cash dividend and that it is not planning to do so in the near future. In the early seventeenth century, however, this was unheard of. Long-lived companies were unknown, and around 1609 nobody could have imagined that the Company would stay in business for nearly two hundred years. It was no accident that to begin with the Company was called “the first ten-year account of the chartered East India Company.” The shareholders were expecting an interim liquidation in 1612. What might happen after that was something to worry about later. During that “first ten-year account,” dividends were considered primarily as advances on the liquidation of 1612. At that time shareholders would be able to get their shares in the Company paid out in full, but it was to their advantage if the Company were to start providing advances as early as possible. Money would lose its value as a result of inflation, which was quite high in the early seventeenth century. The interest on one-year government debt, for example, which is a useful yardstick for inflation, was 6.25 percent. Shareholders consequently wanted an advance on the liquidation of the Company as soon as, say, 1605, rather than

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having to wait until a couple of years later, bearing in mind that the money lost 6.25 percent of its value for every year that the dividend was delayed. In the end, it was not until August 1609 that the VOC announced its first dividend payment. In April 1610 a quantity of mace—an Oriental spice—with a value of 75 percent of the share capital would be distributed. On the one hand, shareholders welcomed this dividend, which they had been awaiting for so long. At the same time, it presented them with a difficult choice. Was it a good idea to accept mace now if there was the option—as they thought at the time—to get paid in cash in 1612? Shareholders who did not collect their mace from East India House would have a bigger claim on the proceeds of the liquidation in 1612. What should they do? Take the mace or wait? Antoine l’Empereur received the specification of the imminent dividend payment from his nephew on March 19, 1610. There would be two types of mace—one of inferior quality worth fortyfive cents a pound and one of superior quality priced at fifty-five cents. To give shareholders the opportunity to sell their mace and get all their money, the Company promised that it would not undercut these prices for a period of two years, starting in April 1610. Two-thirds of the mace dividend would be of the superior quality. This meant that a shareholder holding a Company share with a nominal value of 120 guilders could come to East India House to collect ninety guilders’ worth of mace, being sixty guilders’ worth of superior quality mace and thirty guilders’ worth of inferior quality. The procedure at East India House was that the bookkeeper took the capital account of the shareholder appearing before him and calculated the quantity of mace to which the shareholder was entitled on the basis of the balance of that account. A shareholder who received ninety guilders’ worth, for example, had a right to more than 109 pounds of first quality and sixty-six pounds of second quality. 46

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The bookkeeper wrote the quantities involved on a note, which was checked and signed by one of the directors. The shareholder could then take this to the Company’s warehouse. It is quite possible that in the early years shareholders took the receipts that they had been given when they paid the last installment of the initial capital—the “first shares.” This made it easy for the bookkeeper to find the account—the folio number of the account was on the receipt—and it was also convenient for the shareholder that the amount of dividend he or she had received was noted down. This practice was discontinued later in the seventeenth century, probably because by then the vast majority of shares had already changed hands but the receipts had not been transferred to the new shareholder, so many shareholders simply did not have such a receipt in their possession. De Velaer advised his uncle to take the mace because he was concerned that it could be quite a while before there was a payment in cash. “Shall I collect the mace for you? And please tell me if I have to ship it somewhere,” he wrote.15 The consumption of mace in the Republic was limited, of course, although mace and other exotic spices were much sought after for use in the kitchen and as medicines, so de Velaer’s idea was a very sensible one. He would try to sell l’Empereur’s mace in another European city. Ships sailed to a range of destinations from Amsterdam every day, and such a sale would be easy to arrange, particularly for a merchant like de Velaer, who regularly entered into charter parties in the course of business. But l’Empereur did not know what he should do. He asked his nephew what the “most profitable” course of action would be, but de Velaer was not prepared to stick his neck out. “That is something you really must decide for yourself.”16 L’Empereur noted down summaries of his outgoing letters in a daybook, but unfortunately they are extremely brief, and it remains unclear why he hesitated about whether to accept the mace. Was it that he did not know what to do with it? Or did he think 47

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that the price set by the VOC was too high? The latter conjecture is perfectly possible. Not long before the Company started distributing mace, the Company of the Fourteen Ships (a precompany whose liquidation had not yet been finalized) had given its shareholders pepper. The price dropped sharply as soon as all this pepper was put on the market, so the dividend proved to be worth less than expected. L’Empereur knew this because his nephew had told him, and it is quite likely that he wanted to guard against the same thing happening to him if he collected the mace to which he was entitled. Likewise, l’Empereur did not take the following two dividends (50 percent in pepper in the autumn of 1610, plus 7.5 percent in cash provided that the pepper was accepted, and 30 percent in nutmeg in the spring of 1612). De Velaer, who would of course get commission for selling the spices, tried to persuade his uncle that he should accept payment in pepper by proposing that it be shipped to Venice, Naples, or Danzig. “There are good ships here ready to set sail, and they will be leaving soon.”17 But l’Empereur refused. He bided his time. It is hard to say whether l’Empereur made the right decision. The proceeds generated by selling the spices indeed ended up being less than their book value. Shareholders who accepted all the payments in kind during the 1610–1612 period—receiving a total of 162.5 percent of the nominal value of their shares in mace, pepper, and nutmeg and a small proportion (7.5 percent) in cash—discovered that in reality the value was closer to 125 percent. They were not able to sell the spices for the prices that the Company had used when making the dividend payments.18 On the other hand, shareholders who did not accept these payments had nothing at all for the time being. The interim liquidation, which should have happened in 1612, was canceled by the directors, with the approval of the States General. Shareholders who had been counting on the liquidation and had not collected the earlier dividend now had to wait until 1623, the year in which 48

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the Company’s charter was to expire and the Company would cease to exist. The Lords Seventeen realized that this was too long and might foment discontent, so they decided to pay cash dividends to those shareholders who had not accepted the dividends in kind. These shareholders did not benefit from this profit sharing in the form of a single lump sum because the Company did not have enough cash. They received 57.5 percent in December 1612, another 42.5 percent just under a year later, and the final 62.5 percent in February 1618. This meant that everyone had received a dividend of 162.5 percent. The shareholders who received the dividend exclusively in cash had the advantage that their payment was indeed 162.5 percent of the nominal value of their shares. Those who had accepted the spices received less because the market prices of spices had dropped, but they did benefit from receiving the dividend sooner. They were able to earn interest on the money for a number of years and so were probably not much worse off in the long run. In the years following the establishment of the VOC, it was not easy for Antoine l’Empereur and all the other share dealers to make well-founded decisions about their investments. There was virtually no information about the Company, its ships, and the cargoes they carried. Such intelligence as there was consisted largely of rumors that were difficult to verify. In the first instance, this did not deter l’Empereur from buying a share. He probably expected that the Company would pay out big dividends and that this would enable him to get a good return on his investment. However, when the dividends were postponed and, then, when the returns did not come up to his expectations, l’Empereur became increasingly unsure. Though it is true that he did not sell his share, he did not instruct his nephew Jacques de Velaer to buy more shares on his behalf, either. He also vacillated endlessly about whether he should accept the first dividends. It appears that many shareholders thought like l’Empereur. In 1609, a 49

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year in which there was a relatively large number of transfers, the total number of share ownership changes was still only 276. This was less than a quarter of the 1,143 people who had subscribed to the capital of the VOC in 1602. Most investors left their investments untouched for longer periods. It would seem that as yet the share market bore no resemblance to the hectic conditions that Joseph de la Vega describes in Confusión de confusiones. Jacques de Velaer died in 1612 at just thirty-four years of age. At this point we also lose sight of l’Empereur. How long did he hold on to his share? He must have sold it at some time between 1612 and 1628. All the records of the Company’s capital accounting covering this period have been lost, and his name does not appear in the ledger that was opened in 1628. Did the dissatisfaction that he—in common with many other shareholders—felt about the Company’s policy slowly but surely grow, and ultimately prevail?

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4

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in 1613, Isaac le Maire was living in Egmond aan den Hoef. One of the founders of the VOC, he was also the biggest investor in the Amsterdam chamber, with a subscription nominally valued at 85,000 guilders. He had not relocated to Egmond aan den Hoef to get some peace and quiet or to enjoy being near the sea. He had left Amsterdam because things had gotten too hot for him there. Embroiled in a protracted lawsuit with the directors of the Amsterdam chamber—his former colleagues—le Maire could do nothing with his Company shares until the lawsuit was settled: the directors had frozen his capital account. This had put him in a very precarious position. Le Maire owed shares to numerous dealers, but he could not deliver them because his account was blocked. At least in Egmond aan den Hoef, le Maire did not encounter the share dealers every day, and the notaries and court bailiffs who wanted to remind him of his obligations would have a harder time finding him. Le Maire was keen to end his dispute with the directors, but the legal proceedings had stalled, so he appealed to the burgomasters 51

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of Amsterdam in the hope that they could persuade the directors to be more accommodating. “I have lived in your city for twenty-seven years and fathered twenty-two children,” wrote le Maire in March 1613 in a petition to them. “I have also been a trader; sometimes I have prospered—when the Lord God blessed my activities—and sometimes there have been setbacks. For many years I was also a director of private enterprises as well as the general Dutch East India Company. In those positions I always used my best efforts for the benefit of the businesses.” But “some people” had done everything they could to “persuade and influence” the directors, and so he was treated “unsympathetically.” The directors had taken le Maire to court in Amsterdam and then delayed the proceedings; they had already been dragging on for more than two years. Le Maire had had no access to his share capital throughout this period. This was extremely detrimental because it meant “he had no means of fulfilling his undertakings to deliver shares to certain people, who then sued him, causing very substantial costs and inconvenience.” It was time to get to the point. Le Maire asked the burgomasters if they would take steps to put an end to these “issues and claims.” He stated that he was prepared to accept the judgment of some “impartial merchants and good men [mediators], to be selected and appointed by Your Honors.” He also asked the burgomasters to exert their authority to persuade the directors to cooperate in the mediation attempt. In so doing le Maire hoped soon “to be master of my own resources so that I can alleviate my great need, retain my honor, and look after my large family.”1 The petition came to nothing. Five months later, le Maire received a letter from his brother Johannes, who was a clergyman in Amsterdam and had presented the petition to the burgomasters. After repeated urging, the burgomasters finally talked to the directors about the matter, but they were not prepared to work out a compromise. They wanted to pursue the lawsuit, and they said they would “continue to keep you involved for as long as 52

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their substantial communal purse allows.” Johannes’s explanation for the burgomasters’ ineffectual action was simple. They did not dare criticize the management of the VOC because its members were intimately linked with the governance of the city. In effect, the directors could do as they pleased.2

Isaac le Maire Versus the VOC Why was it that Isaac le Maire was suddenly at loggerheads with his fellow directors? The whole affair started with the management of the Company of the Fourteen Ships (Compagnie van de veertien schepen). This was an East India enterprise that was not formally part of the VOC, which nevertheless took care of its administration. It seems a roundabout way of doing things, but the reason is simple. The initiative for this enterprise preceded the establishment of the VOC, so the Company of the Fourteen Ships had had its own capital subscription. The VOC had only just been founded when the capital—1.7 million guilders—was raised. It was more practical and efficient to put the management and administration of the Fourteen Ships, as it was usually referred to, under the big Company. Le Maire was one of the directors of the Company of the Fourteen Ships, and as usual each director was responsible for part of the fitting-out of the flotilla. The money for this was advanced by the directors from their personal means, and they settled up among themselves later. No one has ever gotten to the bottom of exactly what happened, but it seems that a quarrel blew up between le Maire and the other directors about le Maire’s expense claims—a mundane matter of money. Both the sheriff of Amsterdam and the church council of the Reformed congregation that le Maire belonged to tried to establish what had happened, but neither was able to unearth the root cause of the dispute. The sheriff summonsed le Maire, but he did not appear. When the sheriff 53

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approached the directors for information, they turned him down. In the end, he fined le Maire 1,200 guilders—a sum that incidentally was paid to the sheriff himself and the burgomasters. The church council decided to exclude him from communion for as long as there was no clarity about what precisely had happened— a sanction that would have been a great blow to the God-fearing le Maire.3 It is an indisputable fact, however, that on February 22, 1605, le Maire stepped down as a director, and because the boards of directors of the VOC and the Company of the Fourteen Ships overlapped, this meant that he also resigned as a director of the former. He furthermore signed a declaration that he would never again be involved in an enterprise, in the Republic or abroad, that traded beyond the Cape of Good Hope or the Straits of Magellan. In other words, le Maire would never again be permitted to play an active role in trade in the Far East. Le Maire kept to the straight and narrow for the first few years, but in 1608 he became involved in preparations for setting up a French East India Company. The plans came to nothing, in part because of the murder of the French king, Henry IV, in May 1610. But le Maire did not stop there. In 1609, he financed an expedition to find a northern sea route to the Orient. Were it to succeed, he would no longer have to be concerned about his previous declaration and the VOC’s charter because both only referred to the Cape of Good Hope and the Straits of Magellan, the southernmost points of Africa and South America respectively. The expedition failed, but a couple of years later le Maire was successful. He founded the Australische Compagnie (Australian Company), which was to trade with the Far East via a new western route. Two ships—Eendracht and Hoorn—left the Republic in 1615 under the command of Jacob le Maire, one of Isaac’s twentytwo children. These vessels discovered a route to the south of the Straits of Magellan. They reached the Orient by way of the Le

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Maire Strait and Cape Horn, both of which owe their names to the expedition. The le Maires, however, did not benefit from this achievement. Initially, people did not believe that they had found a new course, one not mentioned in the charter, and when the West-Indische Compagnie (Dutch West India Company) was set up in 1621, it was given exclusive Dutch rights to sail all western routes. This did not settle the matter. Isaac le Maire went to court to obtain permission to conduct trade with the Orient via Cape Horn. After le Maire’s death in 1624, other representatives of the Australian Company continued the legal battle for nearly two decades. As far as our story is concerned, however, another dispute between Isaac le Maire and the VOC is of greater significance. It was about Company shares. Le Maire realized that he did not need expensive flotillas to make life difficult for the directors. It could be done much more easily by utilizing the trade in VOC shares. Le Maire had devised a very cunning plan. He and a few associates agreed to sell Company shares for future delivery—shares they did not own, or at least not yet. This put downward pressure on the share price, which he and his colleagues tried to amplify by spreading rumors about the Company. It was smart of le Maire to do this with a number of accomplices. After all, he was well known in Amsterdam. Everyone was aware of his difficulties with the directors, so they would have seen straight through his plan. Nine dealers joined Isaac in speculating on a falling share price. Le Maire’s stake in the syndicate was just over 25 percent, and ultimately he would receive the same proportion of the proceeds. The other men—Hans Bouwer, Cornelis Ackersloot, Cornelis van Foreest, Willem Brasser, Jan Hendricksz Rotgans, Jacques Damman, Maerten de Meijere, Haermen Rosecrans, and Steven Gerritsz—all had smaller interests. The plan was that the share price would drop like a stone because of the large-scale forward selling, compounded by gloomy

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rumors, and when it did le Maire and his clique would sell a few shares at an even lower price. This would serve to reinforce the negative sentiment among the traders. Le Maire and his consortium of bear traders would then be able to get hold of the shares they had to deliver cheaply and make a big profit in the process. In addition, the low share price might make the future prospects for the VOC look very uncertain. We should not forget that in 1612 shareholders had the option to pull out. If the share price was very low at that point, the eagerness to continue with the Company could well be much muted. Le Maire was in a position to make the directors very jumpy.

Forward Trading The first step in le Maire’s syndicate’s plan was the forward selling of shares, but how did one go about it? Dealers used forward contracts, which were agreements that established that the parties would trade a Company share at a particular time in the future at a price set at the moment that the transaction was entered into. Share dealers did not invent the forward contract. Grain merchants in Antwerp and Amsterdam, for example, were already using them in the mid-sixteenth century to be sure of the grain price the following season, regardless of the size of the harvest. When it came to the share dealers, however, particularly at the beginning of the seventeenth century, certainty about the price was not the most important reason for trading forward contracts. They did it first and foremost for the convenience. A forward contract was nothing more than a piece of paper with the provisions of the contract and the signatures of both parties. No share was transferred, and there was no need to pay anything at the time the contract was signed. None of this happened until the contract’s end date. And even then it was not necessary to transfer the share

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in question at East India House and arrange payment. There was a simpler way to settle forward contracts. On October 23, 1608, for instance, Hans Thijs, an Amsterdam diamond merchant, signed a forward contract with Cornelis van Foreest. Van Foreest was a member of le Maire’s syndicate, but Thijs did not know that at the time. The text of the contract was written in duplicate on a large sheet of paper, in the middle of which there were three large letters, A, B, and C, in elaborate calligraphy. The piece of paper was then cut in two through the letters. This method for distinguishing between original and forged contracts had been in use since the Middle Ages. Only the originals of the chirographs, as these types of documents were called, fitted together exactly to produce the letters A, B, and C. The contract between Thijs and van Foreest meant that a year after the contract date Thijs would buy a 3,000-guilder share (a share listed in the Company’s books at 3,000 guilders) at a price of 145. The price when the contract was entered into in October 1608 was about 130. Thijs and van Foreest met a year later. They opted to settle the forward contract (or “finish it,” as they called it) by offsetting the prices in the contract against the spot price at that moment— the price at which shares were changing hands on New Bridge. This was their choice. They could also have fulfilled the contract by transferring a share owned by van Foreest to Thijs, but they selected the less roundabout alternative, which only involved handing over money. By the end of October 1609, the price of VOC shares had dropped to 126. Under the terms of the forward contract, Thijs had undertaken to buy at a price of 145, and therefore Thijs had to pay van Foreest 570 guilders: namely, 19 percent (145 minus 126) of the nominal value of the share, which was 3,000 guilders.4 The men did not need to go to East India House to do this. The contract was settled as soon as van Foreest had received the money.

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figure 4.1 Handwritten forward contract signed by Hans Thijs, 1611. Source: Thysius Archive, inv. no. 112 C2, doc. no. 1A. Bibliotheca Thysiana, University Library, Leiden.

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It was standard practice among merchants to finalize the settlement by tearing up the contract. This was essential, otherwise a dealer could enforce fulfillment of the contract through the courts at any time for years to come. Given this tradition, it is not surprising that very few forward contracts have survived. In fact, they only remained intact if a dispute arose about the transaction and they were used as evidence in a lawsuit. The forward contract that Pieter Overlander and Abraham Abelijn signed on March 13, 1609, was settled in a different way. This transaction was canceled against a similar contract. Abelijn had sold the contract to Overlander but had also bought a forward contract from Dirck Semeij. The underlying value of both contracts was a 3,000-guilder share, and both contracts had the same settlement date. Semeij, in turn, had bought a forward contract from Maerten de Meijere. Likewise, de Meijere had not just sold a forward contract to Semeij. He had also bought one from Hans Bouwer. In the end, all these businessmen agreed that only one share needed to be transferred—from Hans Bouwer to Pieter Overlander—to settle all these contracts.5 This was possible because all the other transactions canceled one another out. This probably did not happen without money changing hands, but we do not know who had to pay how much to whom because there is no information about the prices involved in these transactions. As these examples show, forward transactions provided different ways to trade shares without having to transfer a share each time a deal was done. This saved a great deal of time and trouble. The dealers did not have to go to East India House, no transaction costs had to be paid to the Company’s bookkeeper, and upon settlement the payment was only a fraction of the share’s value. The forward market consequently became extremely popular in a very short time. Forward transactions were not necessarily any riskier than ordinary spot transactions. What a buyer actually did in a forward transaction was buy a share but postpone paying for it. He was 59

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the “economic owner” of the share for the term of the contract, which meant he did not yet actually possess the share in law, but he was entitled to any share price increase and, likewise, had to bear the loss if the share price dropped. Obviously the seller had to receive compensation for enabling this postponement of payment. Share price data from the early seventeenth century shows that share traders regarded forward transactions as a postponement of payment arrangement, on which interest had to be paid. Jacques de Velaer Jr. often reported the forward price to his uncle as well as the spot price. In a letter dated December 10, 1608, for instance, he wrote that VOC shares were being sold for 130 and “140 for delivery one year hence.”6 The forward share price for contracts with a term of one year was therefore 140. The difference in price, just over 7.5 percent, was approximately the same as the interest rate at that time. A month later, l’Empereur paid 8 percent for the loan that his nephew took out for him in order to enable him to buy a share. It was precisely because it was so much easier to settle forward contracts than spot transactions that businessmen were tempted to take bigger risks. It was easy for a dealer to buy, say, five forward contracts, each based on a share with a nominal value of 3,000 guilders. He did not have to pay a penny when he entered into them. However, he stood to lose a hundred and fifty guilders for every point that the price of Company shares dropped. It was possible to use forward contracts to build up a major position in the market without spending any of one’s own money.

A Ban on Naked Short Selling The forward market grew very gradually, but it soon became notorious thanks to the activities of Isaac le Maire and his associates. They tried to talk down the share price so that they could make money on it. This was not fair play, of course. They were trying 60

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to make money by misleading other share traders. What the directors found particularly reprehensible, though, was the transaction method they used. Isaac le Maire and his confederates had “gone short,” to use the jargon of the financial world. They sold more shares than they actually owned, hoping to buy them at a lower prices as the settlement date of the contracts approached. In seventeenth-century Holland, this was called “blank selling,” which referred to the fact that the shares being sold were from an account in the Company’s share register that was empty. These days, short selling is a frequently used and widely accepted form of trading, but standard practice in today’s stock markets is that an investor who wants to go short, for instance because he thinks that a share is overvalued, borrows a share from another investor in order to sell it. Le Maire and his ring, on the other hand, did not borrow any shares and traded fictitious ones. Nowadays this is called naked short selling, a financial activity that has been prohibited in many countries, particularly since the 2008 financial crisis hit. As soon as the directors of the Amsterdam chamber got wind of what the consortium was up to, they took immediate steps to counter it. Was this because they knew that Isaac le Maire, their tormentor, was behind it? That would certainly have been one consideration, but of course it was also very much in their interests that the share price did not drop too much, because they each owned a substantial amount of share capital. The directors’ first act was to submit two petitions, one to the States of Holland (the highest administrative body in the province of Holland) and a virtually identical version to the States General. They wrote that they had recently found out that “vile practices” were being widely employed in the buying and selling of shares. They explained exactly what was happening without naming Isaac le Maire or his accomplices and asserted that this was all “very disadvantageous to the investors and particularly the many widows and orphans.” The directors’ reasoning was that many widows 61

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and orphans were dependent on their VOC share for their income. This yield had become negative as a result of le Maire’s actions. In fact, the number of widows and orphans who were dependent on an investment in the Company would have been very small indeed, but playing on their painful situation pricked the puritanical conscience of the authorities. While the Republic took a fairly accommodating view of ecclesiastical decrees on money matters—the rules relating to calculating interest, for instance, were less strict than in other European countries—this attitude changed if vulnerable groups were involved. Earning money by trampling on others was not applauded—heaven forbid!—but it was not really condemned unless those being downtrodden were the weaker members of society.7 The directors were shrewd enough to use these sentiments to put le Maire in a bad light. But their petitions did not stop there. They were in no doubt about the involvement of “the common enemy,” who was hoping that the low price of VOC shares would reflect badly on the Company, which would make the States General withdraw its charter. This too was cleverly expressed. The Dutch Republic was still young and had not yet been recognized abroad as a sovereign state. This was a thorn in the flesh of the Republic’s leaders. For them the VOC was a prestige project that could demonstrate the Republic’s power and strength. The members of the States of Holland and States General did not want this to be frittered away by a few share dealers. The directors had also formulated a recommendation about how these “vile practices” could be stopped. The States General should promulgate a law stipulating that all share transactions, including forward deals, had to be registered with the VOC’s bookkeeper within a month after they took place. The bookkeeper would be in a better position to monitor the market, and individuals with few or no shares in their account would no longer be able to sell shares forward. This would prevent a repetition of the prevailing disarray.8 62

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An obligation to register forward deals was the last thing the share dealers wanted. They often preferred forward contracts to spot trades precisely because they did not need to go to East India House every time. And the registration obligation would bring something else that they did not want. A number of dealers— probably members of le Maire’s syndicate—sent a petition of their own to the States of Holland and the States General. They warned the members of both bodies that the registration obligation would mean the Company’s directors would be able to obtain knowledge of “all the trading in the shares that would take place, and they would profit from this both jointly and individually.” In other words, the directors would receive a great deal of information about deals done by others, which they could use to their own advantage. It was very much in the share dealers’ interests for the trade to remain unregulated. To add weight to their petition, they emphasized that they were “good patriots, devotees of the country and its prosperity.” They also explained at length that many other reasons could be found for the low share price. It was really not caused solely by the short sellers’ dealings. The news from the Indies was by no means always good, they argued, and the Company was being badly managed. “The prejudicial management discourages many good patriots and investors.” Equally damaging to the value of the Company were “the hugely excessive and extraordinarily substantial expenses that have been, and are still being incurred by the directors in regard to equipping and provisioning the ships, and in other ways.”9 If this petition came from le Maire and his associates, it shed a different light on the syndicate’s activities. They had, of course, tried to put downward pressure on the share price to make money for themselves, but there was also a flavor of what we might currently call “shareholder activism.” The traders who wrote this petition disagreed with the policy of the Company’s directors and became actively involved in it. Naked short selling was a way of 63

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calling attention to their objections to the way the Company was being managed.10 The conviction that the directors were pursuing bad policy also emerges from a document sent by Isaac le Maire to the Advocate of Holland, Johan van Oldenbarnevelt, in which le Maire tried to persuade the Republic’s most influential official that the low share price was not the result of the short sellers’ dealings but of bad luck and the way the VOC was being run. A number of vessels had been lost; the Walcheren and the China, for instance, had run aground off the coast of Makian. Fortunately, “all the money and goods” were saved, but new ships had to be sent to collect the cargoes and crews, and all the while the monthly wages of the crews had to be paid. The additional costs amounted to 700,000 guilders. And what about the Mauritius? It had set sail from Bantam on December 27, 1607, and never been heard of again. The vessel and its guns had cost about 200,000 guilders, and on top of that there was the lost cargo. Le Maire continued in this vein and worked out for Oldenbarnevelt’s benefit that altogether the losses during the first ten years amounted to around one and a half million guilders. There were also merchantmen that made it back to the Republic with cargo and crew intact, but the problem was that most of what they brought was mace—and there was already mace worth 800,000 guilders stored in warehouses. Only some of it could be sold each year. There was simply not enough demand, and in the meantime the quality of the spice deteriorated—it lost “color and appearance.” In short, he argued, it was primarily poor governance that kept the price of Company shares below expectations. Yet the directors wanted to put the blame on a few people “who engage in some buying and selling of shares in this ten-year account and who do so on the basis of the news and information that they receive on a daily basis.” What were these dealers supposed to have done wrong? Free trade had always been possible in the Republic, and even “what was still growing in the ground” could always be bought and sold. 64

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Why were grain dealers permitted to trade forward contracts freely, whereas doing the same thing with shares was turned into a problem? It should be remembered that shares could be obtained by everyone in large numbers at the time they had to be delivered.11 Meanwhile, the States of Holland had sent all the documents they had received to the Supreme Court of Holland and the Supreme Court of the Republic, two of the highest courts in the Republic, for their advice. The share dealers also approached these two bodies in a final attempt to convince the authorities that it was not them but the directors who were to blame for the low share price. Because it is widely known and clear to everyone that many more ships are being sent than is necessary, and that the spices are lying in warehouses here in this country, since they cannot be sold. It seems that it will consequently not be possible to pay out a dividend in cash for a long time yet, which means that the shares are still being traded above their value and their price is not being kept down.12

The Company’s policy was wrong, or so the dealers tried to explain to the courts. They would do better to intervene there rather than try to restrict the trade in shares. This shareholder activism was toothless. Unlike the shareholders of modern listed companies—who can bring up points at the general meeting of shareholders, are entitled to vote on decisions taken by the board of directors, and so on—the shareholders of the VOC had no formal right whatsoever to be consulted. They could try to influence the directors, the States of Holland and the States General, and the higher courts, but these bodies were under no obligation to listen to them. And that is exactly what happened. On February 27, 1610, a month after the last petition had been sent to the courts, an edict banning naked short selling was promulgated—the first in the history of the world. The States General deemed the practices to bring down the share price to be disgraceful, as can be read in the decision of 65

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February 1610. They led to “the Company’s being brought into disrepute and to grave damage and harm to widows, orphans, and other investors in this Company, who are unable to wait until the Company is liquidated.” Two months after the promulgation of the edict, share dealers were prohibited from selling more shares than were registered under their names in the capital accounts. If the ban was infringed, the sale was canceled, and the seller had to a pay a fine amounting to a fifth of the value of the transaction. The informer received a third of the fine, as did the officer of the court who imposed the fine. The remainder went into the city poor box. Finally, the law also decreed that all transactions, both spots and forward selling, had to be registered with the VOC within one month.13 The first regulation relating to share trading was on the statute books. It is important to point out that this edict issued by the States General was not just a ban on naked short selling; dealers were no longer permitted to sell nonexistent shares. What the 1610 legislation was not, though, was a ban on forward contracts in shares. Dealers could still sell borrowed shares for future delivery. This made the measure broadly comparable to rules prompted by the 2008 financial crisis, for example when the U.S. Securities and Exchange Commission, acting in concert with the UK Financial Services Authority, took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence.

The End of the le Maire Syndicate Back to Isaac le Maire and his consortium. The ban on naked short selling was not an immediate threat to their transactions because it did not come into effect until two months after the promulgation, in other words, at the end of April 1610. Nevertheless, the 66

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bears ran into problems. Now that everyone knew what they were planning, it was no longer possible for them to put their strategy into effect. An important element of their plan, after all, was that shortly before the forward contracts expired, they were going to try to talk down the VOC share price by spreading bad news about the Company and offering to sell a handful of shares at very low prices. After their strategy became known, nobody believed the rumors they were spreading, and no one took the share price they were offering seriously. The names of the members of the syndicate were never made public. We know of them from notarial deeds that were not published in the seventeenth century. In the close-knit community of Amsterdam merchants, though, everyone would have known exactly who was involved. An additional factor was that in August 1609, simultaneously with the issue of naked short selling, the Lords Seventeen announced the first dividend payment by the VOC. As of April 1610, shareholders would be able to collect mace from East India House with a value of 75 percent of their nominal share capital. As we saw earlier, this was probably not the dividend that the shareholders had spent years waiting for, but at the end of the day it was a dividend. After the announcement, the share price did not rise immediately but—and this was crucial to le Maire’s trading syndicate—it did not drop either. This made the bears very jumpy. If the share price went up, they would incur huge losses on all their outstanding forward sales. They tried to settle as many transactions as possible as quickly as they could—with very little success, however, because many of the counterparties preferred to wait until the expiry date of their contracts in the hope that the share price would rise. There can be no doubt that the consortium lost money, but we will never know exactly how great the losses were. By no means all the transactions can be traced in the archives, and there is very little information about the settlement of transactions. Cornelis van Foreest had made 570 guilders on his deal with Hans Thijs, 67

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but this would have been wiped out by much greater losses later on. To make matters worse, there were also arguments about how to wind up the consortium. Liquidation was necessary because all the members participated in the joint transactions at a particular percentage. Isaac le Maire’s involvement, for instance, was 25 percent. He would consequently have been entitled to a quarter of the joint profits, but now of course he had to bear a quarter of the losses. As the syndicate’s losses rose sharply, each member became primarily concerned with his own financial situation. They tried, for example, to hide from the others deals that they had managed to settle at reasonable prices.14 Le Maire and his confederates wanted to make money using practices that were morally dubious. Many share traders—and certainly those who had been misled by le Maire and his men— would therefore have considered the syndicate’s losses and the quarrelling between the bears as no more than their just deserts. Le Maire should, nevertheless, be given credit for one thing. He was the first shareholder who dared to express criticism of the VOC directors’ policy.

Criticism of the Directors It was not long before other shareholders began to express their dissatisfaction with the Company’s policy. In 1613, when le Maire and his accomplices were still squabbling, a group of shareholders protested about the Company’s military operations. In the perception of the States General, which had enabled the founding of the VOC, it was an extension of the state, not just a commercial trading enterprise. They expected the Company to represent the Republic militarily in the area covered by its charter. In a nutshell, the Company had to wage war in order to ensure the long-term presence of the Dutch in the Far East. Fighting wars cost money, however, so this policy put considerable pressure on profits. The 68

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shareholders who openly protested in 1613 would have preferred the Company to concentrate less on its military activities and focus more on commerce. Money had to be made so that the shareholders could get better returns on their investments. The 1613 protest was essentially futile, because Company shareholders had no formal right to be consulted. The fourteen shareholders behind the initiative tried to get their objections to the Company’s policy through to the directors by having a notary issue a writ. The notary they chose was Jan Fransz Bruyningh, the man who had been present when the share register was closed. The procedure for notarial writs was that the notary went to the home of the person served with the writ and, under the watchful eyes of two witnesses, read the text aloud. When the notary finished, the person served with the writ was obliged to give a response but did not have to address its substance. People usually complied by giving a meaningless reply, such as “I hear and see” or “I request a copy of the formal writ.” It was also frequently the case that the person in question was not at home. The notary would then read the writ out to the maid, or the son of the person served with the writ, or whoever opened the door, who then invariably replied, “I’ll tell him when he gets home.” This meant that writs rarely had any direct effect. Nevertheless, the appearance of a notary on someone’s doorstep gave the announcement or demand expressed in the writ an official character. Notarial writs were moreover seen as a first step in possible legal proceedings. The party on whose behalf a notarial writ was served made his demands clear through the notary and at the same time always threatened to take legal steps if his demands were not complied with. There was no chance of follow-up in a courtroom in the case of the writ served on the directors of the Amsterdam chamber by the group of shareholders. This was because the VOC’s shareholders were not entitled to be consulted about the Company’s policy. This writ was consequently quite noncommittal. The only thing it achieved was that the directors had to listen to the objections of 69

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the fourteen shareholders, who stated at the end of the writ that they were actively gathering more support for their message. That message was clear. The VOC should cease all belligerent activities because they cost much too much money and had poor prospects of success. The shareholders were fearful of competition from the English East India Company (EIC, chartered in 1600), which according to the shareholders behind the writ had more financial resources at its disposal and was consequently “in a much stronger position to navigate and trade in the countries of the Orient.” It was pointless for the Company to fight the EIC as long as in the Republic “the High and Mighty Members of the States General did not make any commitment to engage in war.” The Dutch would be no match for the English, and to engage in battle would only make matters worse. It would be better to send a couple of vessels to the East Indies now to collect the goods that were there waiting and ship them to the Republic. The widows and orphans were trotted out again to reinforce this recommendation. According to the parties who commissioned the writ, if the VOC were to discontinue their actions it would prevent “the further consumption and destruction of the resources of investors— amongst whom there are many widows, orphans, and wretched persons—in a foolhardy fashion and in vain and also without any hope or semblance of success.” Why were these shareholders so defeatist? Were the prospects so bad that they wanted to let the English have it all their own way in the Far East? The shareholders would not have relished the thought of English merchantmen returning with the riches of the Orient, but they could not put up with the fact that the directors were letting their investments generate such small returns. This was the big problem. The shareholders foresaw that the VOC would spend even more money on hostilities, that the Dutch would nevertheless come off worst in a showdown with the English, and that the investors would end up with nothing. And the Company had to make money quickly, because even if 70

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all the spices that had been brought to the Republic so far could be sold at the current market prices—which remained to be seen because “fire, falling prices, and deterioration” were lurking—the Company would only just be able to pay back the debts it had incurred. So what was left for the shareholders? Almost nothing, and that was unacceptable.15 The directors took little notice of the writ and continued unperturbed on their chosen course. And they evidently planned to keep doing so, because in 1622, when the first charter was close to expiry, they asked the States General to renew it for fifty years.

The Battle of the Pamphlets The directors wanted to continue their activities, unchanged, for another fifty years. Fifty years! In those days that was the average life expectancy. For all that time the directors would be able to do as they pleased, without ever having to give the shareholders the chance to examine the books. Those who had invested in 1602 and had not sold their shares in the interim would all have died before the financial position of VOC was made public. This was too much for the shareholders to swallow, and once again they took action.16 Abandoning their previous approach, this time they opted for pamphlets—small printed booklets in which someone propounded his views. The subject was usually politics or religion, in other words, important themes that were of interest to large groups of the population. This guaranteed good sales figures, which was an important criterion for booksellers (who in this period were often publishers, too) to produce the booklets. The fact that the shareholders’ protests about the renewal of the charter were disseminated by means of pamphlets demonstrates that this was a subject that transcended the interests of the shareholders, still a relatively small group. This was about the management of an enterprise with which the entire Republic identified. 71

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The tenor of the pamphlets put out by the dissenters, as the protesting shareholders were known, was that the directors were so very keen to have the charter renewed primarily because they used the VOC to line their own pockets. What other explanation could there be for the recent building and fitting out of new ships? Surely a company that is about to be liquidated does not commission the construction of new fleets? According to the dissenters, there could only be one reason. The directors were paid commission on the fitting-out costs, and they wanted to pocket as much as possible. They were only concerned with their own interests. The anonymous author of the 1622 pamphlet Korte aenwysinghe van de kleyne profijten (A brief explanation of the small profits) slung even more mud at the directors. If we were able to examine the capital accounts, he wrote, we would see that the directors had sold their own shares long ago. No wonder they could not care less about the share price! The author of Korte aenwysinghe der Bewinthebbers Regieringe (A brief account of the directors’ regime) published in the same year, also anonymously, accused the directors of trying to make profits over the backs of the shareholders, but according to him they did it in a very different way. They keep news from the Far East that would make the share price rise or fall secret, and they use it for their own benefit and profit. They sing the praises of the Company’s position to push the share price up, thus misleading many God-fearing people, for the sole purpose of selling their shares, and those of their friends, at high prices. At other times they depress the share price by postponing dividends, which creates a mood of despondency among the shareholders.

The pamphlets that created the most controversy were by “Ymant van Waar-mond” (“I speak truth”) and “Ymant Adams” (“I am Adam”), which of course were noms de plume. Pamphlets

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with a more or less subversive content were almost always published either anonymously or under a pseudonym. We know from notes dating from the seventeenth century that “Ymant van Waarmond” and “Ymant Adams” were pseudonyms used by Simon van Middelgeest.17 His Nootwendich discours and Tweede nootwendiger discours (Necessary discourse and Second, more necessary discourse) were overt complaints about the directors that left little to the imagination. Take, for example, the date of the Tweede noot-wendiger discours, “In the twenty-first year of the Unsettled Account.” Van Middelgeest believed it was intolerable that for such a long time the directors had not accounted in any way whatsoever to the shareholders, who—we should not forget—were the owners of the Company, and he was fiercely opposed to renewal of the charter under unchanged conditions. In these pamphlets the directors were portrayed as men lusting after money who acted solely in their own interests. The ill-considered structure of the VOC, which gave the directors the opportunity to enrich themselves, had to be changed. The commission paid on the fitting-out costs was the first issue that should be tackled because “it gives our salaried Lord Directors a shortcut to a goldmine.” It worked like this. The Company bought the things that were necessary to equip the vessels from the directors, who received commission on the total sum involved. But they charged prices for these goods that were much too high, to pocket as much commission as possible over and above their basic salary. The directors had responded by saying that these were false accusations, but if that were true they should permit the books to be inspected. “They say that if you have nothing to hide, you have nothing to fear.” Occasionally van Middelgeest descended to downright defamation. The Tweede noot-wendiger discours, for instance, ended with a passage in which he described what he said were striking similarities between the directors and the Catholic Church. Perhaps,

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though, this was his response to the fact that the directors had put pressure on the States General to prevent shareholders from having any influence on their election. The directors had gone in for some doom mongering and had asserted that voting powers could lead to a figurehead of the Catholic king of Spain being elected to join them on the board. The majority of van Middelgeest’s pamphlets, however, consisted of serious recommendations for improving the Company’s organizational structure and the position of the shareholders. He proposed, for instance, that the shareholders should be entitled to elect their own director—someone they trusted. He also wanted one in three directors to step down every two years to prevent “harmful and shameful usurpation by remaining too long.” Last, the VOC should publish financial accounts every year, and the charter should be made substantially shorter. This was the only way the directors could be forced to improve the management of the Company’s business.18 To the modern reader, these proposals are eminently reasonable. It goes without saying that the shareholders, the owners of the enterprise, should be able to exert influence on the policy and the composition of a business’s management. But in the case of the VOC this was difficult because it needed the charter granted by the States General, and consequently it also had to serve the interests of the government. And the interests of the States General were not the same as those of the shareholders. The latter wanted a trading company that endeavored to make as much profit as possible; the former saw the Company more as a vehicle for conducting war that had to serve the Republic’s interests. For a while it seemed that the dissenters had achieved success with their protest and recommendations. The Company’s charter was renewed not for the fifty years that the directors wanted but once again—like the first charter—for twenty-one years. The commission on fitting-out costs was scrapped. The commission on the proceeds of the goods traded by the Company remained, however. 74

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A maximum term of three years was introduced for directorships, and the shareholders received certain rights. For example, they could elect chief participants. Any shareholder in the Amsterdam chamber could become a chief participant provided he owned a share with a nominal value of 6,000 guilders or more. These chief participants would be permitted to inspect the books and vote in elections to appoint directors. In practice, very little came of these measures. Shareholders with sufficient share capital to be eligible for election were in many cases relatives of directors. Besides, the shareholders who were elected as chief participants were so pleased with the new position they had acquired that they did little or nothing to impede the directors. The directors who had to step down after a period of three years could, if they so wanted and no one objected, immediately rejoin the board for a new term. And although the books were actually opened up in 1622 and the chief participants permitted to inspect them, it did not become standard procedure. It was not until the next renewal of the charter, which was not granted until 1647—three years after the expiry of the second charter because of lengthy and difficult negotiations—that accounts were presented. This did little to benefit most of the shareholders because the chief participants did not share the information they had seen with the “ordinary” shareholders. This was as stipulated in the new charter. While chief participants received access to all sorts of data, they were not permitted to pass it on to the other shareholders, “who did not have the capacity to take cognizance of such information.”19 So it was that the most important result of the dissenters’ protests was the creation of two classes of shareholders—one group with more rights and one with fewer. All the expressions of dissatisfaction—le Maire’s consortium, the shareholders who protested against warlike activities, and the dissenters who fought for changes in the Company’s organizational structure—had had little effect. 75

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Isaac le Maire had long ceased any involvement in these matters. Although he was still entangled in lawsuits about shares that were not delivered and about his alleged infringement of the Company’s charter, he had abandoned his attempts to change the Company’s course. He died in 1624. The inscription on his gravestone in Buurkerk in Egmond-Binnen tells us that although he lost 1.5 million guilders during his foreign trade activities over a period of thirty years, he had kept his honor. We do not know who composed these words, but he must have had very different memories of le Maire than those of the share dealers who were victims of his consortium and of those of the Company’s directors, for whom le Maire had been an irritant for decades. Their memories of him would have left a nasty taste in their mouths.

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5

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barent lampe did not have a bad job. As the Amsterdam chamber’s bookkeeper since the Dutch East India Company’s foundation in 1602, he kept all the chamber’s income and expenditure up to date and received a fixed salary from the directors in return. He was also responsible for registering share transfers—the capital accounting. It was not a full-time position. Some days, only five shares changed hands. Now and again only two pairs of dealers showed up, and there were occasions when no one appeared. Lampe was paid a small amount of commission on every transaction, so transferring shares was good way to make a bit of extra cash. In the first few years, he processed the changes of ownership strictly according to the rules. Every time traders came to him to transfer a share, he dutifully called in two directors to approve the deal. After a while, Lampe noticed that the directors were less than keen on such interruptions. On busy days, Lampe was constantly bothering them, asking them to sign off on share transfers. Lampe never made a mistake, so why did they always have to stop what they were doing? The directors would far rather have left the 77

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ownership changes to Lampe, but that was not allowed because they had to sign the forms, and there was no getting around that. Were they to stop doing so, the share dealers would protest, concerned that the transfer might not have been legal. So time after time, directors walked to the bookkeeper’s little office when Lampe asked them to, dashed off their signatures on the forms, and then went back to work as quickly as possible. Lampe realized that in fact he was in sole charge of the capital accounting. He was not the only one to notice; the share traders whose transfers were registered also saw that the directors barely looked at the ledger containing their accounts. Most of the traders just shrugged their shoulders. As long as they got a signed transfer form, it did not concern them. But there was one individual who thought differently. Hans Bouwer was a man who wanted to get rich quick, and he saw the buying and selling of Company shares as an opportunity to acquire great wealth with little effort, so he joined Isaac le Maire and his association of bears as soon as le Maire invited him. He had no personal feuds with the directors, nor did he have any particular problems with the VOC as an enterprise, but le Maire’s plan, in particular the idea that it could generate a huge amount of money, appealed to him. Bouwer took a sixth share in the consortium—only le Maire’s was greater. Short selling through forward contracts, spreading rumors, buying even more shares: it all involved a great deal of fuss, and the amount of profit it would deliver remained uncertain for a long time. There has to be an easier way, thought Bouwer. The next time he was in East India House for a share transaction, he remained behind for a while after the transfer was done and the form had been signed so that he could talk to the bookkeeper on his own. Without beating about the bush, Bouwer put his infamous plan to Lampe. When Lampe did not reject it out of hand, Bouwer knew at once that he had found his indispensable accomplice. Unlike le Maire’s scheme, Bouwer’s plan was based not on misleading the market but on downright fraud. The idea was that 78

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he would sell shares to different dealers. Lampe would add these shares to the buyers’ accounts but would not remove them from Bouwer’s. Nobody would notice. The directors always signed without a second glance, and the buyers would be content as soon as they saw the share shown on their own account. It was money for nothing! Bouwer tried it a few times, and it worked. The first victim, on January 13, 1610, was Frans van Cruijsbergen. Van Cruijsbergen later told the court that Bouwer and Lampe “were so organized and practiced that it seemed as though Bouwer owned this stake in the company.”1 Two weeks later, Tobias Geurts received a share from Bouwer, nominally valued at 2,400 guilders. And so it continued for a while. By the end of March he had transferred shares with a total nominal value of 24,900 guilders. The price was fluctuating around 133, so Bouwer had earned over 33,000 guilders. That was a great deal of money, a very great deal of money. For just over three hundred guilders Bouwer could have rented a fine house for a year on Vijgendam, the part of Dam close to Rokin.2 Bouwer began to worry that so many sales by one person would arouse suspicion, so he involved a number of other traders in his fraud. They paid a cut of the profit to Bouwer and Lampe while still making good money for themselves. Haermen Rosecrans and Cornelis van Foreest knew Bouwer from the Isaac le Maire consortium, and they seized this chance to make some easy money. His nephew Jasper Bouwer wanted to join in as well. The men looked for potential buyers on the stock exchange, and Lampe arranged the transfers. The money flooded in; no one noticed.3

A Fraudster Takes to His Heels The share dealers who bought one of the “bad stocks” from Bouwer and Lampe would have cursed both men, yet anyone who bought VOC shares later in the century benefited indirectly from 79

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this fraud. The legal proceedings initiated after it became known that Bouwer had had nonexistent shares transferred clarified the legal status of the Company’s capital accounting and also established for all time what a buyer of a share was entitled to when he entered into a transaction. From that moment on, a share trader knew what he could expect if a deal went wrong and he was taken to court. It goes without saying that this was very important. Everyone, including seventeenth-century share dealers, wants to know where they stand if they enter into a transaction involving an enormous sum. The fraudulent selling by Bouwer and his henchmen came to an end in March 1610. Shortly before that, the stipulations of the edict banning naked short selling had come into effect, and it included a registration obligation for all share transactions. This forced the directors to take greater care when changes were made to the capital accounts. It is more than likely that this stopped Lampe from continuing to transfer nonexistent shares, but we cannot be sure. The directors must have got wind of the fraud around October of that year. Might they have chanced upon something odd in the capital accounts? Or was Bouwer or one of his accomplices unable to keep a lid on the swindle? We do not know, but what we can be sure of is that Lampe was dismissed, and a new bookkeeper was appointed and instructed to freeze the fraudulent shares. This meant they could not be sold on, and no further dividend was paid out on them. The owners of the shares concerned did not become aware of this until they went to East India House to transfer their share or collect their dividend. The directors, who of course realized that they could and should have prevented the fraud, were pretty tight lipped when the duped shareholders asked them why the shares had been frozen. A few of them sent the notary Jan Fransz Bruyningh to East India House with a joint notarial writ, in which they protested the state of affairs. They demanded “a relevant and clear explanation” as to 80

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why they were no longer able to avail themselves of their shares. If this explanation was not forthcoming, warned the individuals who had instigated the writ, they would claim compensation. They were also going to consider further judicial steps. The notary read the writ aloud to the directors who were present in East India House at that moment. They responded by asking for a transcript of the writ. “They requested a copy so that they could reply,” noted Bruyningh. No answer was forthcoming, however, so the shareholders sent Bruyningh back to East India House on October 18. This time, the directors were more informative. “Bouwer transferred more shares in the Company than he owned, and the directors will not pay dividends on those transferred shares, nor will they permit their change of ownership again.”4 The shareholders now knew what had happened, but it did them little good. What did they have to do to ensure they got control over their shares, which they had always believed they had purchased legally? Various shareholders had Hans Bouwer summonsed to appear before the Amsterdam aldermen’s court (the local court, which handled disputes about share transactions in the first instance), but he did not turn up. The court’s bailiff could not trace Bouwer, and a summons was published giving him notice that the case would be heard again on the next sessions day. The aldermen would then deliver judgment, even if he failed to appear again.5 Bouwer did not show up in the courtroom for the following hearing either. In his absence he was ordered to pay compensation to the dealers who had bought the shares in question from him. This was by no means the end of the matter, however, because Bouwer had fled the city—as had Lampe. In the early modern era, this was a very effective way to escape creditors. The dealers who believed that Isaac le Maire still owed them shares also knew this. They had to send someone to Egmond aan den Hoef for every notarial writ or summons, and this involved a lot of trouble and additional expense. Where Bouwer went is unknown, but given 81

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that he never appeared in any of the court cases brought against him, it is likely that he was someplace where the Republic’s legal system could not exert any pressure on him. Vianen was a good candidate. Until 1725 this town, only thirty miles from Amsterdam, was a “free city” and not part of the Republic, so creditors could not take any action against defaulters who were hiding there. This made Vianen a popular refuge for debtors. In the Netherlands of the seventeenth century, “going to Vianen” was a synonym for going bankrupt. No compensation could be expected from Bouwer. That much was clear. So what should the owners of the “bad stocks” do now?

Genuine and Sound Shares The owners of shares that were no longer honored decided to target the other people who had been involved in the transactions. Frans van Cruijsbergen, for instance, the first individual to whom Bouwer transferred a “bad” share, had never dealt personally with Bouwer. So van Cruijsbergen tried to claim his loss from the person with whom he did have dealings. The change of share ownership from Bouwer to van Cruijsbergen was the result of the series of forward deals between a number of traders that we have encountered before. They preferred to settle their forward contracts without actually transferring shares at East India House. And so it came about that van Cruijsbergen, who was owed a share by his brother-in-law Pieter Overlander, ultimately received it from Hans Bouwer. But Overlander had not dealt with Bouwer in person. He had entered into a forward transaction with Abraham Abelijn, who in turn had purchased one from Dirck Semeij, to whom a comparable contract had been sold by Maerten de Meijere. It was de Meijere who had originally made a forward deal with Bouwer. It was not necessary for a share to be transferred in order to settle each of these contracts. The traders could 82

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cancel most contracts against each other, and ultimately only one share had to be transferred—from Bouwer to van Cruijsbergen. At this point, the share in question turned out to be fraudulent. Van Cruijsbergen approached his brother-in-law, who was distressed to learn that van Cruijsbergen had been saddled with this trouble. Overlander immediately promised to see to it that van Cruijsbergen received a “genuine” share; otherwise, he would compensate him in some other way. So now it was Overlander who had the problem, yet he had dealt with Abelijn in all good faith. In the legal proceedings concerning this transaction that took place later, he stated that he had discussed the question with Abelijn in Oude Kerk. They might have met there during a church service, although it could also have been on a day when Oude Kerk was being used as a stock exchange. This happened from time to time between 1600 and 1611. It is possible that St. Olaf’s Chapel was too small to accommodate all the dealers when the weather was bad during the summer, the season with the highest trading activity, so everyone moved to Oude Kerk instead. Be this as it may, Abelijn replied that he did not intend to replace the fraudulent share with a genuine one. Overlander’s only option was to take Abelijn to court. An interesting feature of this case is that initially Abelijn had suggested to Overlander that the share should be transferred not by Hans Bouwer but by Jacques van de Geer and Hans Pellicorne, who traded in shares on a joint basis. Overlander had turned this down, though, because at that time van de Geer and Pellicorne were “notorious for lack of substance”—it was rumored that they were in financial difficulties—and Overlander did not want to run the risk of ending up with a bad debt. Abelijn understood the problem and proposed that he would provide a “letter of indemnity.” He was willing to promise that he would make good any problems that arose out of the transaction. Overlander had his doubts, was not really comfortable with the idea, and turned it down. When Abelijn said that he had also done business with Hans Bouwer and 83

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he could ask Bouwer to transfer the share, Overlander agreed to his offer immediately. He assumed there would not be any problems since he “had dealings with Bouwer on a daily basis.” Abelijn’s lawyer saw his chance. Overlander had expressed his objections to getting van de Geer and Pellicorne to transfer the share, and Abelijn had tried to address these concerns. Yet Overlander accepted Bouwer’s share without any reservations whatsoever. He had not even asked for a “letter of indemnity.” Well, in that case, Overlander could not now demand that a new—and this time “genuine”—share should be transferred. The aldermen did not think this was a strong defense for Abelijn and were leaning toward allowing Overlander’s claim. Before doing so, though, they asked him to swear under oath that he had been promised that the share that would be transferred to him would be “genuine and sound.” Overlander did not need to think about this for long and stated that this had indeed been the case. The aldermen’s judgment was that Abelijn had to supply a “genuine” share. Abelijn did not leave the matter there, however. He instigated legal proceedings against Semeij and won his case. Semeij subsequently summoned de Meijere to court and also had his claim allowed. It would have been a logical step for de Meijere to initiate a lawsuit against Bouwer, but he knew it would be a futile exercise because Bouwer had taken to his heels. Instead of summoning Bouwer to appear before the court, de Meijere launched an appeal against the aldermen’s court’s judgment against him in the case brought against him by Semeij, by applying to the Supreme Court of Holland, the provincial court of appeal in The Hague. Did he really think his appeal had a chance of succeeding? Perhaps not, but at stake was a share with a nominal value of 3,000 guilders, which had meanwhile increased in value on the stock exchange to over 5,000 guilders. That was serious money. Using the comparison with rents again, at that time one could rent fifty desirable dwellings in Amsterdam for a year for this sum.6 An appeal was de Meijere’s only 84

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option for avoiding the obligation to spend this sum on a share for Overlander. At that time there was no way of knowing whether de Meijere would win his appeal, but because there was a time limit for appealing against a judgment by the aldermen, the others also found it necessary to appeal against the judgments in their cases. This was pure common sense. If de Meijere’s appeal was successful, Semeij wanted the option of demanding the same from Abelijn. The whole series of lawsuits was consequently repeated in the Supreme Court of Holland, except that the claimants in the cases in the aldermen’s court were now the defendants. The judges of the Supreme Court of Holland largely concurred with the judgment of the aldermen, at which point de Meijere lodged another appeal, this time to the Supreme Court of the Republic. This court, which was also located in The Hague, in fact only differed from Supreme Court of Holland in that it also had jurisdiction over the province of Zeeland. From a judicial point of view, the Supreme Court of the Republic was consequently of little added value. As far as the litigating parties were concerned, however, an appeal to the Supreme Court of the Republic provided an additional chance to win their cases. When de Meijere made the move to the Supreme Court of the Republic, the others had no choice but to follow suit, and all the lawsuits were heard for the third time. The Supreme Court of the Republic’s judgment changed nothing; de Meijere was stuck with a bad debt. Nonetheless, the judgments of the Supreme Court of Holland and the Supreme Court of the Republic did differ from that of the aldermen’s court in Amsterdam in one respect. These higher courts did not require a statement made under oath that “genuine and sound” shares had been promised. It went without saying that a buyer expected a “genuine and sound” share.7 The judgments thus went beyond the scope of these cases about Bouwer’s “bad” share. They made it clear that dealers engaging in forward trades were entitled to assume that the other party would transfer a “genuine” 85

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existing share that was part of the capital of the Amsterdam chamber as registered in 1602. It was not necessary to incorporate any additional guarantees. These judgments meant the forward trade could continue in the same way, with nothing more than simple private contracts, and dealers did not have to fear that they would be saddled with dubious shares. The courts’ opinion in such cases was now clear.

Directors in the Dock Maerten de Meijere had to take the loss. There was no one else, apart from the absconded Hans Bouwer, he could hold liable for the share that the court said he must deliver. Tobias Geurts was in a similar position. He had dealt directly with Bouwer and consequently could not claim a replacement share from another dealer. However, his position differed from de Meijere’s in one important respect. Geurts had actually received a share that had been transferred by Bouwer. The directors should have supervised the legality of this transfer, and so Geurts decided to take the directors to court. This was not a bad idea. When the share was transferred by Bouwer, everything seemed to have been done by the book. Two directors had been in attendance and had approved the transfer. During the legal proceedings Geurts recalled exactly who they were. The directors Jan Poppen and Leonart Raey—both cofounders of the VOC—had been present. There had also not been a problem when the first dividend was paid out. Geurts had gone to the Company’s office to collect the 75 percent payment in mace and had been given the consignment without any questions. Director Jacques de Velaer Sr. watched Lampe look up Geurts’s share in the books and calculate how much mace he was entitled to. De Velaer also signed the form that enabled Geurts to collect his consignment from the warehouse. A couple of months later, on December 1, 1610, Geurts went to East 86

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India House again, this time to collect his share of the payment in pepper (50 percent). On this occasion, the duty director was Jan Poppen, and he, too, did not hesitate to sign the dividend form. This is remarkable because it was known before December 1 that Bouwer had committed fraud. Apparently the full scope of his fraudulent activities had not yet been recognized. Then Geurts wanted to sell his share to Elias de Raet. They agreed to a price and went together to East India House, but the directors refused to approve the transfer. They told Geurts that his share was “bad” and so could not be transferred. All of a sudden the share was worthless. Geurts went to the aldermen’s court and demanded that he be considered a “fully fledged investor” by the directors. On three occasions the share had been “acknowledged as proper” by the directors—when it was transferred from Bouwer to Geurts and at both dividend payments—and according to Geurts that could not simply be undone. It must have been a remarkable spectacle in the aldermen’s courtroom in the old town hall on Dam Square when the Geurts case came to trial in December 1612 (anyone in the Republic who went to court needed a great deal of patience; this was two years after the directors had refused to approve the share transfer). During the session, the aldermen also dealt with the case of Abraham de Ligne, who had experienced exactly the same problem as Geurts. De Ligne also represented the merchants Jacques Nicquet and Pieter Sijmonsz van der Schelling, who had likewise acquired a fraudulent share transferred by Bouwer. These men summonsed all the directors who had been present at the transfers and who approved the different dividend payments. In the case brought by Geurts, these were Poppen and Raey. Jacques de Velaer Sr. died shortly before the hearing. Raey was also involved in the other case, and alongside him in the dock were his fellow directors Jan Hermansz van Reen, Elbert Lucasz Helmer, Albert Symonsz Joncheyn, François van Hove, Bernart Berwijns, and Reinier Pauw. 87

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The presence of the last of these men is particularly interesting. Pauw was one of the most influential people in Amsterdam’s city council. This group of leading citizens elected burgomasters, the administrators of day-to-day matters in the city, from among their number and advised them on various issues. Pauw had been an alderman, and on eight occasions between 1605 and 1620 he held one of the city’s four posts of burgomaster for a year. In 1619 he was to be a member of the special court that sentenced the Advocate of Holland, Johan van Oldenbarnevelt, to death and the celebrated lawyer Hugo Grotius to life imprisonment, but things had not yet reached that stage when he had to appear before the aldermen in regard to the case of these shares. Could the aldermen be objective in judging the man with whom they had had so many dealings? Based on the verdict—the aldermen judged in favor of the share dealers—they could. The directors were each held jointly and severally liable for upgrading the fraudulent shares whose transfer they had approved to “good and genuine shares,” on which dividends would be paid out, and the claimants “will be able to transfer to others if they so wish as true owners and investors.” The directors had tried to put up a defense by saying that they were not parties to the share transfers and that they only supervised the work of the bookkeeper, but it was to no avail. The directors could not increase the share capital of the Amsterdam chamber without further ado in order to give the claimants “genuine” shares. There was thus no alternative but to finance from their own pockets the purchase of existing shares, part of the initial capital subscribed in 1602, in order to transfer them to Geurts, de Ligne, and his two co-claimants, or to transfer a part of their own share capital. This must have come as quite a blow to the directors. All of them were wealthy merchants, but this matter involved a very great deal of money. Geurts’s share had a nominal value of 2,400 guilders, and each of the shares transferred to de Ligne and his two co-claimants was for 3,000 guilders. During that period the price of the Company share was about 150, bringing 88

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the total to over 17,000 guilders. Eight directors were involved in these cases, which meant that they were held liable for a sum of over 2,000 guilders each—you could buy an unpretentious canalside house for that sort of money.8 The aldermen’s verdict was a wake-up call for the directors, who started to monitor the transfer of shares more closely. They realized that a minor lapse of attention might have serious financial implications in the future, so they changed the transfer procedure. Starting in 1616, the recipient of a share had to sign a declaration that he indemnified the Company against future claims and that he was “satisfied and content” with the share transferred to him.9 Meanwhile, the directors were still saddled with the “bad” shares that they had to replace. They therefore lodged an appeal against the verdict with the Supreme Court of Holland. The directors hoped that the judges in The Hague would overturn the verdict of the Amsterdam aldermen. In the short term, it was also particularly useful that the directors did not have to implement the judgment of the aldermen’s court until the Supreme Court of Holland issued a ruling. The decision was published on December 22, 1616, ten days after the new rule about indemnifying the Company when shares were transferred came into effect. The Supreme Court of Holland’s opinion was essentially the same as that of the aldermen’s court, but they stipulated that the owners of the “bad” shares only had a claim on the directors in question. Upon the death of the directors concerned, the claims did not pass to their widows and surviving dependents. This provided the directors with opportunities. If they could not win the case, they could at least try to prolong the judicial process such that all the directors would have died before they would actually have to come up with the shares. That would not necessarily take that long. By 1602, the directors had all enjoyed a full career as merchants, so now—fourteen years later—they were in the autumn of their lives. Jacques de Velaer Sr. had died before the aldermen heard these cases, and Jan Poppen passed away 89

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between the aldermen’s judgment and that of the Supreme Court of Holland.10 The others would not have that long to live either. Their strategy was for the directors to lodge another appeal, this time with the Supreme Court of the Republic. They demanded that the claims of Geurts and de Ligne should be rejected. To ensure that the Supreme Court of the Republic did not form a judgment too quickly, the directors submitted further requests to the court on a number of occasions, asking to be permitted to add new evidence to the legal proceedings. The Supreme Court of the Republic finally issued its ruling at the end of December 1621, nine years after the aldermen’s court had judged that the share dealers should receive “good and genuine shares.” By then Leonart Raey and Albert Symonsz Joncheyn had also died.11 The possibilities for dragging out the court cases had now been exhausted, but that would have been of little concern to the surviving directors because the ruling was much better for them than they had dared to hope. The Supreme Court of the Republic overturned the decisions of the aldermen’s court and the Supreme Court of Holland, and the directors were no longer held liable for the delivery of authentic shares.12 Did the Supreme Court of the Republic take the view that the directors could not be held liable for something that they had done on behalf of the business, even though they had been seriously negligent? Or was it an example of one law for the rich and another for the poor? Unfortunately, the reasoning of the Supreme Court of the Republic will remain unclear forever because judges in the Republic did not need to explain their verdicts. In fact, to do so was considered inappropriate.

Genuine Buyers Hans Bouwer could still cause trouble even if no fraudulent shares were involved, as Allert van Balck, who had sold a share to Bouwer, found to his cost. They agreed to their transaction 90

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on April 5, 1610. The deal concerned a 3,000-guilder share that Bouwer would buy at a rate of 155. It was a spot trade, but Bouwer did not have the money there and then, so van Balck delayed transferring the share. Van Balck was on New Bridge again the following day, where he met Jan Hendricksz Rotgans. Rotgans told him that Bouwer had sold him the share that he had just bought from van Balck. So he proposed that van Balck should transfer the share directly to his account because it would save a lot of fuss. Initially, van Balck had his doubts about whether he should do so. “But I did not do the deal with you,” he replied to Rotgans. But Rotgans assured him that he had discussed everything with Bouwer, who had agreed to settle things this way. Van Balck was still concerned: how would they arrange payment for the share? This was an issue that needed to be thrashed out. Rotgans only had to pay Bouwer 1,000 guilders for the share because of another transaction that they still had to settle, whereas van Balck was supposed to receive 4,650 guilders for his share. In principle, van Balck was happy if Rotgans paid him that 1,000 guilders directly, but when would he get the remainder? They both went to see Bouwer, who assured van Balck that everything was in order. “Rotgans owes me another 1,000 guilders, which you’ll get, and you’ll receive the rest of the money next Friday, April 9, from me via the bank.” The bank concerned was the Bank of Amsterdam (Wisselbank), housed in the town hall on Dam Square, which had opened the year before. Apparently both businessmen already had accounts. The bank was set up to facilitate payments. Merchants could pay gold and silver coins into an account from which they could then make payments to other accounts in the Bank of Amsterdam. Van Balck agreed, received the 1,000 guilders from Rotgans, and let himself be persuaded by the latter, who was very insistent, to transfer the share immediately. The transaction did indeed end up in the Company’s capital accounts. An entry dated April 7, 1610, records that a 3,000-guilder share was transferred from 91

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Allert van Balck to Jan Hendricksz Rotgans.13 Bouwer did not go to the Bank of Amsterdam to execute his part of the payment, though, nor was he at home when van Balck went to settle the score. Bouwer and his wife had fled the city. As soon as van Balck realized that he could whistle for the money Bouwer owed him, he hurried round to East India House to have the share attached. This was a reasonably simple procedure. If someone could provide plausible arguments that he had claims to a share, he could get the directors to attach it. The share could then not be traded until the court issued a ruling about the attachment. The case was heard by the Amsterdam aldermen’s court relatively soon thereafter. Van Balck asked the aldermen to invoke his right to recover the share. This meant that the vendor of a good could demand its return if the purchaser failed to pay the complete purchase price or if the purchaser had misled the vendor at the moment of sale, for instance by deliberately concealing impending or actual bankruptcy.14 Van Balck must have been able to demonstrate on the basis of a transcript from the accounts of the Bank of Amsterdam that he never received full payment for the share, but even so the aldermen did not find in his favor. Van Balck did not let things rest there and lodged an appeal with the Supreme Court of Holland, which enabled him to have the share attached again. This meant that Rotgans could not have control over his share for even longer, and that made him furious. He decided to serve van Balck with a notarial writ. “You are trying to frustrate me in my justice,” he told the notary Frederick van Banchem to write, “and you are trying to impede me from selling the share to my advantage, the price of which has meanwhile risen to 158.” Rotgans threatened to claim all the profit lost as a result of the attachment from van Balck, who appeared to be pretty unimpressed; he replied by saying, “I hear and see.”15 The Supreme Court of Holland did not find in van Balck’s favor either. He then tried again by appealing to the Supreme Court of 92

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figure 5.1 Amsterdam’s old town hall, which also housed the Bank of Amsterdam and the aldermen’s court. Source: Pieter Jansz Saenredam, The Old Town Hall of Amsterdam, 1657. Rijksmuseum, Amsterdam.

the Republic, which heard the case in 1622 and also dismissed his appeal.16 The overall proceedings consumed a great deal of time and money, which implies that van Balck must have thought he had a good chance of winning the case. This was true; on each occasion, the judges had to go through the difficult process of weighing up the interests of both parties. Van Balck did indeed have the right to demand return of the ownership of the share because he had been misled. On the other hand, Rotgans appeared to be a genuine buyer who had done nothing wrong in regard to purchasing the share and who had also paid the agreed purchase price in full. How honest he actually was is another matter. Like Bouwer, Rotgans was a member of le Maire’s consortium. However, there 93

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were no indications in the case with van Balck that Rotgans was acting dishonestly. By finding for Rotgans, the judges safeguarded the further development of trading in shares. They considered the rights of sincere and unsuspecting buyers to be the most important. From then on, the purchaser of a share could be confident that he had full ownership of a share as soon as it was recorded in his account. He did not need to investigate whether there was another claim on the share. As a result of the judgments in the case of van Balck versus Rotgans, it was conclusively established forever who had ownership of a share. This made the foundations of trading significantly stronger.

Invalid Contracts All these lawsuits could create the impression that the share dealers were to be found in the courtroom more often than on New Bridge, but nothing could be further from the truth. In fact, the law was frequently broken on the forward market without traders ever going to court. What was different from the cases involving Bouwer, though, was that these traders were fully aware of the fact that they were entering into prohibited transactions. It was explicitly stated in the contracts they used that they knew they were acting contrary to the regulations. In addition, the traders promised each other that they would not make an issue of it. They agreed not to go to court if the transaction were to give rise to a dispute. The law that many traders broke with mutual agreement was the edict of February 1610 banning naked short selling. As we have seen, they had not asked for this legislation. When the ban was nevertheless promulgated, the dealers ignored it as far as they could. It is not possible to verify when they resumed selling shares they did not own for forward delivery. Private contracts were used 94

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for these deals, and they have only survived in exceptional cases. It is impossible to establish whether transactions during the period shortly after 1610, about which information is available, involved naked short selling. All the records of the Company’s capital accounting covering the 1612–1628 period have been lost, so there is no way of checking whether or not a vendor owned the shares he was selling for future delivery. The journal of share transfers from the moment the ban edict came into force and for 1612 has survived, but there is no information about forward deals. We do know that share dealers revived the practice of naked short selling before 1623, because it was in that year, when the Company’s charter was renewed, that the 1610 edict was promulgated again. It contained a few additions. For instance, “renouncing the edict directly or indirectly” was prohibited. In other words, dealers were not permitted to relinquish their rights under the 1610 edict or the new one, which came into effect on June 3, 1623. Putting it another way, traders were not allowed to agree that their dealings in nonexistent shares were valid. The fact that this was explicitly stipulated indicates that it had meanwhile become standard practice among the traders. The share dealers took not the slightest notice. They continued to make agreements under which they ignored the legal stipulation that naked short selling was prohibited. Forward contracts from later in the seventeenth century contained exactly the same renunciation clause referred to in the 1623 edict. The sentences concerned are at the bottom of the contract. By signing the contract, the vendor undertook to supply the share in accordance with the specifications. The purchaser undertook to pay the agreed sum. Both parties furthermore committed “their respective persons and goods, present and future, without exception” to the contract and put it “under the control of the court of Amsterdam.” This meant that if one of the two parties failed to fulfill his obligations, the other party could submit a claim on the other party and his property to the Amsterdam aldermen’s court. 95

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Up to that point, there was nothing noteworthy about this provision in the printed forward contracts, but the sentence continued, “without using now or in the future any other judicial procedure, which the parties expressly renounce without fraud, including the edicts dictating that forward contracts must be registered.” By signing the contract, both parties thus declared that they would only go the Amsterdam aldermen’s court to enforce delivery of or payment for the share. They waived in advance any other legal procedure or a lawsuit for other reasons. They also declared that while they were familiar with the content of the rules governing forward trading, they explicitly decided to take no notice of them. Could they do that? Indeed they could. The forward traders used private contracts, and the different levels of government had no direct influence on them. In principle, the businessmen could put anything they wanted into a contract. The States General and lower tiers of government tried indirectly to make ignoring the edicts about naked short selling as unattractive as possible. It was decided, for example, that contracts containing the objectionable renunciation clause would be “null and void” in court. This made it impossible, or at least that was the purpose of this rule, to enforce this type of contract in court, even if the transaction did not involve naked short selling, because in the eyes of the court it was valueless. The brokers who were in the stock exchange to help dealers negotiate deals would be fired without notice if they were caught entering into such contracts. This was within the power of the municipal authorities because anyone who wanted to provide brokerage services had to be admitted to the brokers’ guild, and they controlled the process. This meant the city council could remove brokers from their positions if they broke the rules. Both attempts by the authorities to exert influence on forward trading failed. To begin with, judges refused to declare automatically every transaction that took place on the basis of a contract with a renunciation clause to be null and void. If, though, it was a case of naked short selling and the purchaser took the other party 96

figure 5.2 Forward contract, September 2, 1644. On May 2, 1645, Willem Muijlman was to deliver a 3,000-guilder VOC share to Philips de Baccher. The forward price was 457 guilders. The two halves of this contract were completed, but the transaction did not go ahead because Willem Muijlman did not sign his part of the contract (the top half). Source: Collection of civil case documents from the Archives of the Supreme Court of Holland, inv. no. IIB274. National Archives, The Hague.

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to court for that reason, the court canceled the transaction. In 1633, for example, Severijn Haeck initiated proceedings against Andries Polster because he wanted to get out of the contract he had agreed to with Polster. The report of the lawsuit does not state why he wanted to do this, but probably the price of the underlying share dropped significantly during the term of the contract such that Haeck would lose on the transaction. He suspected that Polster did not own the share and asked Polster to “show it in the books.” What Haeck meant was that he and Polster would go to East India House and look in the Company’s books to check whether Polster actually owned the share. When Polster refused, Haeck was convinced that a lawsuit stood a chance of success. And he was right. The judges canceled the contract because Polster could not prove that he owned the share on the contract date and during the term of the contract.17 The same contracts with a renunciation clause were also used for forward deals that had nothing to do with naked short selling. This was because these traders did not want to comply with the registration obligation in the naked short selling edicts either. By using the standard contracts with a renunciation clause, they similarly ignored the registration obligation. According to the edicts, such contracts would automatically be null and void, but the judges thought differently. If this type of “normal” forward sale, where the dealers had put their signatures to a renunciation clause, was part of a lawsuit, the judges considered the substance of the case. These contracts were so widespread that even Vincent van Bronckhorst, a justice of the Supreme Court of the Republic, did not shrink from using them.18 Similarly, during the whole of the seventeenth century not one broker was dismissed because he had mediated in a contract with a renunciation clause. In other words, the rules that applied to forward trading were not complied with to the letter. The judges in the Republic sometimes chose to use their own approach when judging the trading of shares. They deemed naked short selling to 98

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be unacceptable, and in so doing complied with the regulations of the States General and the States of Holland. When it came to other matters—the contracts that the share traders used and the involvement of brokers in negotiating such contracts—they interpreted the rules as they saw fit. The legal proceedings conducted between 1610 and 1635 made matters much clearer for the share traders. It was conclusively established that the ownership of a share was transferred as soon as the Company’s bookkeeper had recorded the change of ownership in the capital account. The dealers now also knew for sure that they could expect to receive a “genuine” share as a result of a forward deal. Finally it became clear that the courts would never uphold naked short selling, but a contract with the forbidden renunciation clause was not automatically declared invalid if it became the subject of a lawsuit. In consequence, the aldermen’s court and the higher courts in the Republic were of great importance in the development of share trading. It is also interesting to note that they acted quite independently of the government. In fact, by adopting the position that dealers were permitted to use contracts that openly flouted the regulations, the judges deprived the authorities of their only option for influencing the forward market. This put the market completely beyond the government’s reach. The forward trade also escaped the influence of the Company’s directors because the courts ruled that there was no need to comply with the registration obligation for forward transactions. The directors would have bemoaned this situation, but there was nothing they could do about it.

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thomas sprenckhuysen had held on to his share in the Dutch East India Company for almost thirty-three years—since the Company’s foundation, when he subscribed to the initial capital through the minister of his Remonstrant church, up until March 1635. Sprenckhuysen had decided it was time to sell his share. He had heard that the price had risen more than 37 percent over the previous two years, from around 175 to about 240, so this seemed like a good moment to sell. If he could dispose of his 300-guilder share at 240, he would have made a handsome return. While it was quite possible that the price would go even higher, it could equally easily drop again in the near future. Sprenckhuysen had absolutely no idea, because he never went to the exchange and rarely if ever followed the news and rumors about the Company. So why should he not take his profit now? Sprenckhuysen had a rough idea of how shares were traded, but he had never actually done so. Everyone knew that shares were bought and sold on the exchange. When he walked past the big building just off Dam Square, though, he always saw a huge 100

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throng of people. How was he supposed to find someone in that crowd who wanted to buy his 300-guilder share? And how could he avoid being swindled? He remembered only too clearly how difficult it had been to keep coming up with the installments for his subscription in time. Three hundred guilders had been a lot of money for him thirty years before. Now Sprenckhuysen wanted at all costs to avoid being done down by an artful trader, which would leave him feeling ashamed for years afterward. And what was he supposed to do if he reached an agreement with someone about the sale? All the businessmen had an account at the Bank of Amsterdam (Wisselbank), but he did not. He would prefer to be paid in coin. Would someone be prepared to pay for the share in cash? Thomas Sprenckhuysen decided to start by asking his friends and relations. His cousin Willem Seulijns was married to the daughter of Andries Rijckaert, a very wealthy merchant who at one time had also been a director of the Amsterdam chamber of the Company. Surely Rijckaert could give him advice about the best way to sell his share. Seulijns spoke to his father-in-law and returned with a disappointing message. Recent trading had been almost exclusively in shares of three thousand guilders or a multiple thereof. There was virtually no demand for shares with other nominal values, such as the 300-guilder share that Sprenckhuysen wanted to sell. Sprenckhuysen just had to hope he could find somebody who wanted to buy his small stake. Fortunately, Rijckaert gave him some helpful advice. Sprenckhuysen should go to see Christoffel Raphoen, on the east side of Nes, or his brother Jan, in Oude Turfmarkt. They would probably be able to help him out. It was a good tip. When Sprenckhuysen went to Christoffel Raphoen, the deal was quickly agreed. Raphoen and his brother offered to buy the share for cash, and they were completely open about the price they would pay, which was 2.5 points below the rate at which shares were trading that morning on the exchange. 101

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They were prepared to pay Sprenckhuysen a price of 237.5. Sprenckhuysen had his doubts and wondered whether he could perhaps find another buyer for his share at a slightly higher price, but he decided that it was not worth the trouble. On March 23, both men appeared before the Company’s bookkeeper, and the share was officially transferred to the account of Christoffel and Jan Raphoen.1

Market Makers When they started out, Christoffel and Jan Raphoen were “ordinary” businessmen. Various charter parties mentioning the brothers can be found in the archives of Amsterdam notaries. They shipped goods throughout Europe, went to the exchange regularly, and occasionally traded VOC shares there too. They must have realized that dealing in these shares was different from the other types of commerce that were going on. Only professional and specialist merchants actually traded in goods. The grain business, for instance, was dominated by dealers who did little else but buy and sell grain. The same was true of the trade in silk, beer, and all the other goods that changed hands in Amsterdam. The dealing in Company shares was different. Although many of the shareholders were merchants, for whom the way business was done on the exchange held few secrets, when the Company was founded there were also large numbers of subscribers who never went to the exchange and had no experience in trade. A lot of them were not from Amsterdam. If these shareholders wanted to sell their shares—and there were many who, like Thomas Sprenckhuysen, decided to do so after the sharp price increase that began in 1633—they had to brave the bear pit of the exchange, where they were complete novices. Christoffel and Jan Raphoen realized they could make money by targeting precisely these people. 102

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The Raphoen brothers were always willing to buy and sell shares. These days, they would be called market makers in New York or jobbers in London. Unlike most dealers, their goal was to earn money not just through share price increases and dividends but by doing very large numbers of transactions. They made a small margin on every deal because they always offered a little under the market price when buying and asked for slightly more when selling. This difference (the bid-ask spread, in financial jargon) was their profit. Customers were eager to accept Christoffel and Jan Raphoen’s terms. This was because doing business with a market maker offered significant advantages—there was no need to hire a broker, there was no need to find a buyer or seller, and there were no negotiations about the price. Dealers were able to avoid a lot of fuss and bother by doing business with the Raphoens. There were costs associated with this service, of course, but many were content to pay them.

Hendrick de Keyser’s Exchange By this period, the Raphoen brothers and all the other traders no longer went to New Bridge. Since 1611, trading activities had been conducted in a new, specially designed exchange building on Rokin, just south of Dam Square—the Hendrick de Keyser Exchange. In the seventeenth century, people just called it “the exchange.” The addition of “Hendrick de Keyser,” after the building’s architect, was only used later to distinguish it from the Zocher Exchange (where trading took place between 1845 and 1903) and the Berlage Exchange (which took over the activities of the Zocher Exchange in 1903). The Hendrick de Keyser Exchange was built over the watercourse of the Amstel River. In the seventeenth century, Rokin canal—now filled in—was still functioning. Water from the Amstel flowed along it by way of a sluice near Dam Square to Damrak 103

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figure 6.1 The Hendrick de Keyser Exchange, looking toward Dam Square. Source: C. J. Visscher, Hendrick de Keyser’s Exchange, 1612. Collection of the Capital Amsterdam Foundation, Amsterdam.

and finally to the IJ. The exchange was built on a large stone arch, under which vessels could pass if they struck their masts. Nothing now remains of the building. Philipp von Zesen, a German traveler who visited Amsterdam in around 1660 and published an account of his visit, noted that the exchange “was built so soundly that it looks indestructible.”2 Shortly after the opening, however, the building had subsidence problems, and on a few occasions the trading activities actually had to relocate to Dam Square and Nieuwe Kerk. In the nineteenth century, the city decided not to do any more repair work, and the exchange building was completely demolished. The only thing that serves as a reminder that Amsterdam’s trading activities took place there for a very long time is the 104

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name of the alley next to the Industriële Groote Club building: Beurspoortje, or Exchange Alley. It was the city council’s decision to build the exchange. Commerce in Amsterdam had grown out of all recognition in a very short time, and it was obvious that New Bridge was not the ideal spot to accommodate all the dealers on a daily basis. It was narrow, and the trading was pretty disorganized. Buildings specifically designed for trading in goods and money had been built in Antwerp and London as early as the sixteenth century. Amsterdam city council was familiar with these buildings and recognized their benefits. In 1607 it consequently commissioned the design of a building based on the exchanges in Antwerp and London. The first stone was laid on May 29, 1608, by Hendrick Cornelisz Hooft, the youngest son of Cornelis Pietersz Hooft, who at that time was one of Amsterdam’s burgomasters. Hendrick Cornelisz was incidentally the younger brother of Pieter Cornelisz Hooft, who later on became very famous as a historian, poet, and playwright. The exchange buildings in Antwerp, London, and Amsterdam had large open courtyards. The one in Amsterdam was approximately sixty meters long and thirty-five wide. This created the impression of a market square with a wall around it. It was not just the wall that made Hendrick de Keyser’s Exchange different from a market square, of which there were large numbers in the Republic. Around the courtyard was a covered gallery. Tiled in blue stone, it was about half a meter above the level of the courtyard, which gave anyone standing in it a good view of the assembled dealers. This was probably also where Melchior Fokkens stood when he was collecting material for his description of Amsterdam and its history. He noted how he “saw a huge crowd of thousands of people; folk of all sorts from all classes, from all four corners of the world.”3 The forty-two pillars that supported the roof were numbered and served as places to meet. There was a pillar where salt merchants would congregate, for instance, one for the trade in hides 105

figure 6.2 The places where shares were traded after the opening of Hendrick de Keyser’s stock exchange. Amsterdam’s new town hall, which also housed the Bank of Amsterdam, can be seen on Dam Square. Hendrick de Keyser’s stock exchange was reached by way of Kromelleboogsteeg or Beurssteeg. East India House and the Bushuis can be seen on the extreme left of the map detail, on the corner of Oude Hoogstraat and Kloveniersburgwal. Source: Daniel Stalpaert, Amstelodami veteris et novissimae urbis accuratissima delineatio, 1662. University Library, University of Amsterdam, Amsterdam.

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and skins, and, right at the back, one where shares were bought and sold. This may sound rather trivial, but the numbered pillar system helped merchants to find one another for their transactions. The exchange had very limited opening hours. They were set in a local bylaw passed by the city council on July 26, 1611, five days before the exchange opened. The exchange was open every morning, except Sunday, between eleven o’clock and noon. Between May and August, it was also open in the evenings for an hour, between half past six and half past seven. In winter, the exchange opened for the last thirty minutes before the bell at the city gates was rung.4 The city council set these limited opening times because they wanted to concentrate the dealers in one place as much as possible. This was beneficial to trade, since the greater the number of traders present at the same time, the better the chance of finding someone to do business with. And the bigger the volume of transactions, the better it was for the city. The city council would also be able to get a firmer grip on commerce. Supervision was easier to organize if all the trading was in a single location and took place within a small time window.5 Repeated attempts by the city council to persuade merchants to conduct all their transactions in the exchange failed. Shares, for example, were bought and sold outside, primarily on Dam Square. The siting of the exchange meant that the commercial heart of Amsterdam shifted to the area around Dam Square. There were no traders on New Bridge after 1611. However, it was not just the new exchange that caused this transition. The Bank of Amsterdam, which businessmen had to visit regularly in order to arrange payments, was housed in the town hall on Dam Square. East India House on Oude Hoogstraat, where share traders had to go to transfer shares, was also nearby. The economic infrastructure in the area around Dam Square inevitably attracted other services. The notary Jan Fransz Bruyningh, for instance, moved his office from Heintje Hoekssteeg to 107

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somewhere nearer the exchange. Later in the century, more notaries who specialized in commercial legal instruments would establish offices in the side streets around the exchange.6 At this time Kromelleboogsteeg was a curved alley that used to lead directly from the exchange to the town hall. It was a particularly popular location for notaries to have their offices. It was right on the route that the merchants took if they went to arrange payment for a deal that they had done on the exchange. Dam Square became the economic center of the city and would long remain so. Like most Amsterdam businessmen, Christoffel and Jan Raphoen went to the exchange every day. It was no problem for them to drop in during the hour that it was open. Christoffel lived on the eastern side of Nes, the street parallel to Rokin, and Jan’s home was on Oude Turfmarkt, immediately south of the exchange. It was convenient that they lived so close because it was crucial for market makers to be in the exchange every day. If the Raphoen brothers wanted to make serious money, people had to know that they were always prepared to buy and sell shares, and the easiest way to acquire a name for doing this was to be there every day. They did business on a joint basis, so they did not both need to be at the share dealers’ pillar, and this enabled them to pursue their other commercial activities as well.

Standardization It goes without saying that the Raphoen brothers wanted to profit from their transactions, but at the same time their activities as market makers were of great value to the trade in shares in two ways. First, they provided access to the market for shareholders who were not familiar with how things worked on the exchange or were not in a position to come to the exchange in person to find someone to deal with. For instance, it was difficult for shareholders from outside Amsterdam to buy or sell a share. Traveling to 108

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the exchange involved a great deal of time and trouble, and then they had to be lucky enough to find someone to buy from or sell to without delay. This problem had been solved because Christoffel and Jan Raphoen were always available to do business. And there was an even easier way. Shareholders from outside the city could authorize someone, usually a friend or a relative, to trade a share in Amsterdam through the Raphoen brothers. Christoffel and Jan Raphoen’s second great contribution was the major role they played in standardizing the Dutch East India Company share. No standard share size had been specified when the Company was founded in 1602. Subscriptions to the initial capital could be of any amount, which meant that shares of all possible nominal values could be traded. Suppose a shareholder had a 5,000-guilder share in his account. He could sell the entire share in one go, but he could also decide to sell a smaller share—3,000 guilders, 250 guilders, or any other amount he chose. Consequently, dealers had to reach an agreement about the price, the terms and conditions of supply, and also the size for every transaction. This did not necessarily cause problems, but it made sense to deal in shares with a fixed nominal value when it came to more complex bargains. This was particularly important in settling deals efficiently. Take the transaction that has come up a number of times before, where Frans van Cruijsbergen was owed a share by his brother-in-law, Pieter Overlander, who had dealt with Abraham Abelijn, who had purchased a share from Dirck Semeij, who was sold it by Maerten de Meijere, who originally bought it from Hans Bouwer. All these transactions were settled by transferring a single share. The fact that the transferred share was fraudulent is irrelevant here. What is important is that this settlement method was only possible if a comparable share—with the same nominal value—was traded in all these deals. It did not take the share dealers long to realize this—particularly on the forward market, where most of the shares traded had a nominal value of 3,000 guilders as early as the first decade of share 109

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trading. This developed spontaneously. As soon as there were more forward transactions involving 3,000-guilder shares than shares with other nominal values, it made sense for all traders to consider using a 3,000-guilder share as the basis for such bargains. It is not clear why the dealers opted for a nominal value of 3,000 guilders as the “standard share.” In theory, they could have chosen any sum they liked. The selection of 3,000 guilders was probably linked to the shareholding that the Company’s directors were obliged to have. According to the twenty-eighth article of the charter, during his tenure a director had to own a minimum share capital with a nominal value of 6,000 guilders. This sum was set at 3,000 guilders for the directors of the Hoorn and Enkhuizen chambers. In 1602, the Amsterdam directors all signed up for at least 12,000 guilders. In other words, they used multiples of 3,000 guilders. It would appear that the share dealers adopted this practice. Whether a standard value of 3,000 guilders was a good idea from a practical point of view is a different matter. Three thousand guilders was, after all, a huge sum. And as the share price rose, the amount that actually had to be paid for a share became even larger. In the 1640s the price of a Company share stood almost continuously at above 400, which meant that over 12,000 guilders had to be paid for a share with a nominal value of 3,000 guilders. To put this in perspective, in 1645 the substantial and prestigious canal-side mansion (with a rear annex) at 105 Herengracht was sold for 5,100 guilders.7 The standardization of the forward market also had an impact on the spot market. It is clear from the Amsterdam chamber’s capital records that a growing proportion of the share transfers involved shares with values of 3,000 guilders or a multiple of it. In 1641, this was the case in 92.5 percent of the transfers, as against 32.5 percent in 1610.8 Three-thousand-guilder shares were thus easier to trade on the exchange. To put it another way, the liquidity of Company shares with a nominal value of 3,000 guilders was higher than that of shares with other nominal values. 110

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This was disadvantageous for owners of shares with other nominal values. Those shares were in fact worth relatively less than the nominal 3,000-guilder shares because the buyers of shares with “nonstandard” values bore in mind when purchasing them that they were more difficult to trade. They demanded compensation in the form of a discount on the market price. Christoffel and Jan Raphoen took very shrewd advantage of this situation by systematically buying up small shares. In so doing they provided a very useful service to the owners of unsalable shares and consequently to the share market as a whole. It was also a way for the brothers to make money. They combined the shares that were difficult to sell into saleable 3,000-guilder shares, which could be sold for a better price. This was very simple because a shareholder could transfer shares of any nominal value he wanted, provided that his account in the capital accounting ledger had enough to cover it. If the Raphoen brothers’ balance was 600 guilders, for instance, and they then bought shares of 2,250 guilders and 1,300 guilders, they could sell a 3,000-guilder share, leaving them with a balance of 1,150 guilders. They would then have to buy more shares before they could sell another 3,000-guilder share. The Raphoen brothers’ account with the Company’s Amsterdam chamber shows this practice clearly. The sales are almost exclusively shares of 3,000 guilders nominal value, whereas the purchases had a very wide range of values.

Price Hike Christoffel and Jan Raphoen’s joint account existed from 1626 to 1642, but the peak of their market making was between 1633 and 1641, coinciding with an extraordinary episode in the history of the trade in VOC shares—a long period, starting in 1633, of an unprecedentedly upbeat mood on the exchange. Anyone who bought a Company share in 1633 and sold it ten years later did 111

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very well. During that period, the share price rose from 186 in March 1633 to 470 in June 1643—an increase of over 250 percent. In addition, the Company regularly paid out dividends during the intervening years, amounting to a total of 322.5 percent of the nominal value of the share capital (140 percent in cash and the rest in cloves). During these years, the shares produced returns that those who had invested right from the beginning, with the paltry yields that the shares generated shortly after the Company was set up, had not dared dream of. Later in the seventeenth century, the returns would not come close to these figures. The share price would continue to climb after 1643—the highest level of the seventeenth century, 566, had not yet been reached—but there was no repeat of the previously unheard of sustained increase that there was during this period. The boom was remarkable, to say the least. Ten years before, in 1623, activist shareholders had been very critical of the VOC. Their pamphlets made it abundantly clear that the Company did little to create shareholder value. The directors were concerned primarily with their own incomes, and the States General looked on the Company first and foremost as a vehicle for conducting war that was intended to safeguard the long-term presence of the Republic in the Far East. The shareholders, on the other hand, would have preferred the emphasis to have been on making the biggest possible profit. Whether the shareholder protests had direct influence is very much open to question, but it is a fact that around 1630 the VOC changed its business strategy. Shortly after its foundation in 1602, it was the Company’s policy to send ships to a series of different places. Forts were built there to create a safe haven for the Dutch, and the vessels returned as quickly as possible with cargoes of spices. After about 1610, the Company established a permanent presence in the Orient. An Asian shipping network was developed, with Batavia, the current Jakarta, as its hub. Goods were 112

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shipped from different parts of the Far East to Batavia, where they were transferred to merchantmen that sailed to the Republic. Over the following decade this network was significantly expanded. Company vessels were now navigating not just to the islands of present-day Indonesia but to Japan, China, and Formosa (now Taiwan) as well. The foundations of this network were laid around 1630. It continued to be extended and refined, but the basis was there and functioned well.9 The introduction of the Company’s new strategy was not all plain sailing. The period between 1610 and 1630 was the bloodiest in the Company’s history. Under the leadership of Jan Pietersz Coen, the Dutch ruthlessly penetrated the Far East. The shareholders in the Republic barely concerned themselves with the fate of the local population in the areas where the VOC was operating. They were primarily interested in the Company’s profitability, and the change in policy had a very positive effect. Between 1610 and 1620 the Company had made losses, despite paying no dividends. In the following decade, though, it made profits estimated at 750,000 guilders a year. Over the following twenty years, from 1630 to 1650, the Company turned in its best results of the seventeenth century. During these two decades, the income from the sale of goods exceeded the costs that the Company incurred by an estimated 2.1 million guilders a year. During the ten years thereafter, it rose to an average of 2.3 million guilders a year.10 The VOC’s dividend policy shows a trend that parallels the growth in the enterprise’s profitability. Starting in 1623, the Company paid out a dividend every two years, and from 1635 on, every year or every six months. This was very different from the first twenty years, when the dividend payments lagged far behind the shareholders’ expectations. The dividend was still often paid in kind, primarily in the form of cloves, but the higher frequency and above all the regularity with which the payments were made caused the share dealers to change their forecasts about the Company’ profitability. The future now looked very bright. 113

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The sharp rise in the share price generated more customers for the Raphoen brothers. Naturally, the Company’s bookkeeper did not record the reasons for share transfers in the capital accounts, but Christoffel and Jan Raphoen’s clients included many individuals like Thomas Sprenckhuysen—people who had signed up in 1602 for a modest amount and had done nothing with their share thereafter—as well as shareholders who had inherited theirs. The high price prompted these share owners to sell their shares, which ended up in the hands of active dealers by way of the Raphoen brothers. This had a positive impact on the trade in shares. Almost twice as many shares were transferred in 1639 as in 1609 (713 as against 368). This increase was brought about primarily by a limited number of shareholders who started to trade with increasing frequency.11 The forward market probably grew far faster still, but this cannot be quantified because forward transactions were not recorded centrally. There can be no doubt that the increase in the price of VOC shares was linked to the sharp rise in profitability and the changed dividend policy that resulted from it. Nevertheless, it certainly cannot be considered separately from the economic situation in the Republic. The expression “Golden Age,” used to describe the seventeenth century, reflects the unprecedented economic prosperity during that era. What many people do not know is that the real economic boom was during the first half of the century, although the Republic was still very rich and powerful afterward. The major naval battles with the English, for example, all took place in the second half of the century, and impressive projects such as the construction of the most imposing and distinguished section of the ring of canals in Amsterdam also date from that period, but by then the era of very vigorous economic growth was over. The 1640s witnessed the high point of the Republic’s economic boom. Arable farming, animal husbandry, and fishing were perfectly geared to the markets, and huge cargoes of grain were imported from the Baltic. Manufacturing, most notably the 114

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textile industry in Leiden and the linen industry in Haarlem, flourished. While the people’s purchasing power was falling in other European countries, it was rising in the Republic.12 This prelude to the greatest flowering of the economy had come in the previous decade. In Amsterdam, the Republic’s richest city, it must have seemed as though there were no limits to economic progress. Everything that was undertaken turned to gold, and money was made hand over fist. Something had to be done with all that money, and VOC shares were an investment option that was certainly worth considering. The shares were very liquid. They were easy to buy and, equally importantly, very simple to sell if a businessman needed the money for other purposes. This made them significantly different from many other investment vehicles. Much greater efforts were required to sell an investment in real estate, for instance, than a share. Bonds issued by the States of Holland, which enabled people to invest in the province’s government debt, were also popular. The trade in them was negligible, though, which made them difficult to sell, and the yield was relatively low. In short, VOC shares had many advantages for investors. The extra demand for shares in this period would have pushed up the share price even more, over and above the price hike that resulted from the changed dividend policy. There was another factor that also played a role during this era—a passion for speculation and gambling among residents of the Republic. These two activities are closely related, but they are certainly not the same. Speculation is when an investor expects that a share, or some other type of investment, will rise or fall in value, and tries to make money on the basis of that expectation. In gambling, on the other hand, payment is made in accordance with a certain probability distribution. For instance, buying lottery tickets is a form of gambling. Lotteries were very popular in the Republic for a long time, as they were in other parts of Europe. In the sixteenth and early seventeenth century, hospitals and institutions for the poor earned a great deal of money by 115

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organizing lotteries. They went about it on a grand scale. The most renowned artists were asked to donate works to add luster to the lotteries. When it was time to draw the winning lot, the whole city turned out.13 As a result of the Synod of Dordrecht (1618–1619), however, a strict version of Calvinism gained the upper hand in the Republic. This was incompatible with gambling fever, and lotteries were banned, even though the proceeds had largely gone to good causes.

Five Thousand Guilders for a Tulip Bulb When gambling was no longer allowed, speculation became more popular. Perhaps the best known example is the speculation on the value of tulip bulbs in the 1630s.14 Tulips had been brought from the Ottoman Empire to northwestern Europe since the end of the sixteenth century, and they soon became popular in the Republic. Veined and striped tulips were very much sought after. But these varieties were also very rare, which meant that the bulbs of the most unusual tulips were traded for huge sums. The number of people involved in trading bulbs increased rapidly, and tulip bulbs changed hands frequently, particularly in Haarlem but also in Enkhuizen, Alkmaar, and Amsterdam. Most of the trading took place in winter, so it consisted solely of forward deals. In winter, after all, tulip bulbs are in the ground. Bulbs that had been traded could not be physically handed over to the new owner until the spring, so it was stated in the contracts that the bulb in question would not be delivered until after the flowering season. Beautiful catalogues with hand-colored drawings of the bulbs were used to give the dealers an idea of the variety. And then, during the winter of 1636–1637, when the price of Company shares was rising rapidly, something remarkable happened. The prices being offered for tulip bulbs increased by leaps and bounds. The most exclusive tulips, which had always been 116

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expensive, were now being traded for stupendous sums. And the prices of more common or garden varieties jumped hugely, too, rising by a factor of twenty. These high prices were paid, for instance, at the sale of the estate of Wouter Bartholomeusz Winckel on February 5, 1637, in Alkmaar. Winckel had died shortly before, leaving young children who would have to be maintained by the governors of the orphanage (the municipal officials responsible for the care of orphans). Money was needed for this, so Winckel’s worldly goods were auctioned off. The sale was a great success. Winckel had started trading in bulbs a few years earlier and owned a very fine collection of tulip bulbs when he died. They were knocked down for enormous sums at the auction. A Viceroy bulb, weighing about thirty-three grams, fetched 4,200 guilders, and before that an Admiral of Enkhuizen tulip went under the hammer for 5,200 guilders. The sale generated 90,000 guilders. At that time, you could buy a good house in Alkmaar for 1,000 guilders, so there was enough money to feed and clothe Winckel’s underage offspring for a very long time. But the governors of the orphanage would never receive this money. The bulb market in Haarlem collapsed three days before the Winckel sale, and prices in Alkmaar dropped like a stone soon after it. Such sums were no longer offered, and existing agreements were not honored. Exactly why the trade collapsed has always been a mystery. Something must have happened. Had regulations been introduced that amended the existing contracts? Or was the trade in bulbs a sort of pyramid scheme, where the participant’s profit depended on an influx of new members? If there are suddenly no new traders, the game’s foundations disappear, and it collapses.15 Or did the traders suddenly realize that they had been paying insanely high prices for bulbs? We do not know, but there is no doubt that the trade collapsed. In the spring of 1637, no end of disputes arose between bulb dealers about agreements that were not honored. The events of that winter have gone down in history as tulip mania. The name says it all. People were dealing in hot air. The 117

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dealers were blinded by the prospect of making a killing, and that kept pushing up the price of tulip bulbs. The fact that people joined in while it was clear to everyone that a bulb could not possibly be worth that much, suggests that a kind of madness—an illogical mania—had taken control of the normally level-headed Dutch. These days, when people talk about tulip mania, they always mean the irrationality of the bulb trade. Every time there is a crisis on financial markets—share prices tanking after the dot-com bubble burst (2001) and after the overvaluation of subprime mortgages came to light (2007)—references are always made to the Dutch trade in tulip bulbs. Nearly four hundred years ago people were foolish enough to use huge sums of money to speculate in tulip bulbs, and today people are still being blinded by greed. This image of mania is reinforced by the fact that tulip bulb trading largely took place in taverns, so it would seem likely that the dealers would have been drinking. As a result, the trade has tended to acquire an image of a shadowy, drunken pastime, but this is not accurate. It was not uncommon in the Republic to do deals in taverns, and almost without exception auctions were held in inns or alehouses. They were quite simply practical locations where a group of traders could meet—particularly in the winter. And it was certainly not true that the bulb dealers were all drunk and sat shouting at one another. There was often a committee of supervisors in attendance to keep order and make sure trading was conducted in accordance with the rules drawn up by the traders themselves. Doing business in an inn was less strange than it might seem, but how stupid was it to ascribe so much value to tulip bulbs? Were the bulb traders crazier than the share dealers, who attached much more value to Company shares during the same period? And were these two episodes linked? There is no easy answer to these questions. Tulips were very special flowers for people in the seventeenth-century Republic. They were scarce, particularly the sought-after varieties with variegated colors. In those days, 118

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growing bulbs was something that hobbyists did. People were not as skilled at getting bulbs to multiply as they are these days. The combination of scarcity and popularity automatically led to high prices. It is possible that during the notorious winter of 1636–1637 the tulip dealers thought they had found a way to get striped varieties to reproduce. In that case, the sums they were offering would have been completely rational, as they would have been able to recover their money by selling new bulbs.16 In the seventeenth century, people did not know that the color variegations were caused by a disease in the bulbs: these exciting, highly sought-after effects could never have been achieved by breeding. In short, there is still a significant lack of clarity about the price movements. One thing we know for sure is that many contracts were not honored after the crash. This tells us that the bulb traders were first and foremost speculators. They purchased bulbs in the hopes they could sell them at a profit. When the price suddenly stopped rising, they were no longer interested in the tulip bulbs and tried to wriggle out of their contracts. This could not, of course, be done without further ado. Many vendors went to court to enforce fulfillment of the agreements. But the lower courts did not know how to handle the disputes between the bulb dealers. The Supreme Court of Holland, when asked for advice, stated that traders with a contract that was not fulfilled should sell their bulbs at market price and should then hold the counterparties liable for the loss sustained. As far as possible, the dealers should try to reach settlements. They could only go to court as a last resort. In Haarlem, the city with the biggest volume of tulip bulb trading and thus the city with the most problems, people took the advice of the Supreme Court of Holland very seriously. The local court there refused to hear disputes relating to the tulip trade, so the disputes between the bulb traders dragged on interminably. Finally, the councils in different cities proposed solutions. Purchasers could cancel their contracts if they paid a penalty. This meant that they had to pay a fine of 3.5 percent of the amount 119

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involved in the contract to the vendor. In the Republic this was a customary way of canceling an agreement. By paying the fine, the dealer frankly admitted that he was in the wrong. This was considered to be honorable, or at least considerably more honorable than when a trader reneged on a deal. But of course a penalty like this was never intended for use in all transactions. In the aftermath of tulip mania, the community of tulip dealers disintegrated. The traders no longer trusted one another. There was further trading in bulbs in the Republic, but at a level that never again come close to the scale of the market in the winter of 1636–1637. Tulip mania has always attracted a great deal of attention because so much money was offered for something as commonplace and perishable as a bulb, but the scale of the trade in tulip bulbs should certainly not be exaggerated. There were some 285 people actively involved in bulb trading in Haarlem, with an estimated sixty traders in Amsterdam. By way of comparison, in 1639 in Amsterdam 264 people carried out one or more share transfers.17 The total number of active share dealers, including forward traders, who were never included in the figures in East India House, would have been around 350. Amsterdam’s bulb trade was thus nothing more than a peripheral phenomenon compared with the dealing in shares. Moreover, the trade in tulip bulbs in Amsterdam was conducted by the members of a very specific group—primarily Mennonites. Conversely, this religious group was very much underrepresented among the shareholders. Mennonites rejected any form of armed activity, and this belief was irreconcilable with the avowedly belligerent character of the VOC. Might the substantial increases in the price of Company shares have been linked to tulip mania? Both were affected by a serious epidemic of the plague, which broke out in the Republic in 1636. There are no exact figures as to how many people died during this epidemic, but given its severity it is quite possible that about 10 percent of the population succumbed. While this was terrible, of course, it meant that the other 90 percent became even richer than 120

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they already were. To put it another way, a very substantial amount of money suddenly became available, and it is by no means inconceivable that there were people who invested their inheritance in tulip bulbs or VOC shares. Tulip mania and the huge boom on the stock market both seem to have sprung from an urge to speculate. Even so, they were unmistakably different phenomena because the price of Company shares remained at a high level after the 1633–1643 boom, whereas tulip bulbs never again changed hands for the huge sums seen in 1637. As far as we can now judge, tulip mania was the symptom of an irrational craving to speculate and had little if anything to do with the rise in Company share prices. Not everything associated with tulip mania disappeared after 1637. Some twenty years later, the most active share dealers transferred some of their deal making to trading clubs. As we shall see, the way bargains were made in these clubs bore a striking resemblance to the trade in tulip bulbs in taverns during the winter of 1636–1637. These very active traders, who would later conduct their negotiations in exclusive clubs, were not on the scene during the first decades of share trading. In the early years, people bought a share first and foremost to make a profit on the price and receive dividends, but they also wanted to support the Company and the Republic. They hung on to their shares for a long time, and the most important reason for selling a share was that the shareholder needed the money tied up in his investment for another purpose. This began to change around 1630. Increasingly, people were trading for trading’s sake. The market makers Christoffel and Jan Raphoen were the first. Many were to follow them. By no means all these dealers were market makers. What they had in common with the Raphoen brothers, though, was that they traded with the aim of making a small profit on every transaction. Whether these deals involved shares in a company that sailed to the Far East on behalf of the Republic became less and less important to them. 121

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7

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it was still very early in the morning of January 1, 1672, when the notary Adriaen Lock and two witnesses walked toward the wooden bridge over the Amstel that led to the district where many Jews lived. In his pocket the notary had a writ that he had to read out to Joseph Pereira. Pereira’s home was soon found, and Lock knocked on the door. Pereira opened the door himself, so Lock could start to read. “The petitioner, Jacob Pereira, says he handed you a diamond ring on June 22, 1671, in the synagogue in Houtgracht and in the presence of witnesses Manuel Rodrigues and Manuel Mendes Flores. By accepting the ring, you undertook to take delivery today, January 1, 1672, of a 3,000-guilder VOC share at a price of 525. The petitioner notifies you herewith that he is ready to deliver the share. He may also be prepared to come to a settlement with you about the difference between the agreed price and today’s spot price (440).” Joseph Pereira clearly recalled that he had encountered his cousin Jacob Pereira that day in the synagogue, that they talked about 122

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trading in shares—as they almost always did when they saw each other—and that they had indeed discussed a transaction that should have been executed today, January 1, 1672. Nevertheless, he took the view that he was not bound in any way. His response to the writ was short and to the point. “I have never signed a contract, so the petitioner has no claim on me.” Once he had noted down this response, Lock was free to return to his office near the exchange. Before he crossed back over the Amstel, though, he dropped in on Jacob Pereira to report Joseph’s reaction to the writ. Joseph Pereira did not change his view of the matter in the ensuing two weeks, so Jacob Pereira continued to collect evidence to support his demand that Joseph had to accept a share from him. He asked Manuel Rodrigues and Manuel Mendes Flores to go to Lock and make a statement. They were prepared to do so without delay, and on January 18 both men were sitting in the notary’s office. Rodrigues and Mendes Flores declared that it was true that in the month of June 1671—they could not remember the exact date—Jacob Pereira had handed a diamond ring to Joseph Pereira and that Joseph thereby undertook to take delivery of a share from Jacob on January 1, 1672. Rodrigues added that he “was absolutely sure about all this” because on the day in question he had held the ring in his own hand before Jacob gave it to Joseph.1

New Merchants We start with a disappointment. We do not know how this dispute between Jacob and Joseph Pereira ended. The statement made by Manuel Rodrigues and Manuel Mendes Flores in Adriaen Lock’s office is the last trace of this transaction to be found in the archives. This probably means that the Pereira cousins were able to reach a settlement. It is a shame we do not know precisely how things turned out, but the transaction is well worth mentioning even without this information. The agreement between Jacob and 123

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Joseph Pereira was an option—which we will hear a lot more about later—that was entered into in the presence of four men with Iberian-sounding names in the synagogue of the Portuguese Jewish community of Amsterdam, without signing a contract. Or, more precisely: a diamond ring was handed over, without the expected quid pro quo being specified in a contract. There was also discord between the Pereiras on the question as to whether an option transaction actually existed. Jacob and Joseph Pereira were not the only people in the synagogue who were busy trading shares. In fact, while dealers and brokers just about managed to keep quiet during the service itself, there was plenty of negotiating going on both before and immediately after it. In 1677, the synagogue’s board of government decided that this had gone too far and prohibited trading in the building. Trading then moved to the courtyard, but that, too, was banned in 1702.2 The presence of Jewish traders in the share market was by no means exceptional in the second half of the seventeenth century. The travel journal of an anonymous Englishman who journeyed through the province of Holland at the end of the seventeenth century is the only source that expresses in figures the proportion of the share market for which Jewish traders were responsible. “The Jews dominate the buying and selling of shares. People say that they are responsible for seventeen out of every twenty shares traded.”3 That meant that around 1690, the year the Englishman visited Amsterdam, seventeen-twentieths, or 85 percent, of the trade in shares was in Jewish hands. In the space of fifty years, between about 1640 and 1690, Jews had come to dominate the buying and selling of shares. How? What happened in this period? Where did they come from? The overwhelming proportion of the Jews who came to play such an important role in trading shares were Portuguese Jews, also called Sephardic Jews. There were German and Polish Jews 124

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living in Amsterdam, too, but they were not major players in the share trade. The term “Portuguese Jews” suggests that they all came from Portugal, but their history is somewhat more complicated than that. There was a large Jewish population in the Iberian Peninsula even before the start of the Christian era. Jews lived there in relative freedom, particularly during the Moorish period, when that part of the world was largely under Islamic rule. This changed during the Reconquista, the Christian conquest of the region. The Reconquista ended in 1492 when the Catholic monarchs (los Reyes Católicos) Ferdinand II of Aragon and Isabella I of Castile captured the city of Granada. This signaled the end of the Moorish presence in Spain and also put an immediate end to tolerance of the Jews. The Edict of Expulsion, issued in Granada in 1492, obliged Jews to convert to Christianity or else leave Spain. Most chose the second option. Some went to England, Italy, and the Low Countries, but most emigrated to North Africa, the Ottoman Empire, and Portugal, which at that time was independent of Spain. The Jews who went to Portugal were unfortunate. Five years later, in 1497, a similar edict was issued there too. This caused a new and larger wave of migration to northwestern Europe, and since then, all Jews with roots in the Iberian Peninsula—including those who arrived during the first wave of migration—have been referred to as Portuguese Jews. At the end of the fifteenth century, the economy was doing better in other parts of Europe, so the northern part of the Low Countries was not yet a particularly sought-after refuge. Portuguese Jews consequently did not play a significant part in Amsterdam’s rise as a trading center, which started in the second half of the sixteenth century. They were similarly barely involved in setting up the Dutch East India Company. Among the subscribers to the initial capital of the VOC’s Amsterdam chamber, only two names are unmistakably those of Portuguese Jews: Estevan Cardozo and 125

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Elisabeth Pinto, who signed up for 1,800 and 3,000 guilders respectively.4 It is not surprising that in 1602 the Republic was still not a popular place for this group to settle. After their forced exodus, Portuguese Jews had concentrated primarily on trade with the region they had come from—the Iberian Peninsula. They still had an extensive network there—primarily Jews who had opted to convert to Christianity, although some secretly remained Jewish. This network gave the Portuguese Jews an advantage over other merchants in the Iberian trade. Commercial contacts on the Iberian Peninsula were of no value in the Republic, though. The Republic was at war with Spain, and trading with the enemy was strictly forbidden. This embargo also applied to the overseas territories of Spain and Portugal, which at that time came under the Spanish crown. Accordingly there was little for Portuguese Jews to do in the Republic. The Twelve Years’ Truce (1609–1621) brought about a change in this situation. Hostilities between the Republic and Spain ceased temporarily, and the trade embargo was suspended. Portuguese Jews in various northwestern European cities immediately seized their opportunity to conduct trade with Spain and the Spanish territories from the rich Republic. We do not know exactly how many Jews settled in Amsterdam, but it is evident that Portuguese Jewish trading activities in the city grew quickly. This can be deduced from the number of Jews who had an account with the Bank of Amsterdam (the Wisselbank). An account there was indispensable for making international payments, so every international merchant had one. The number of Portuguese Jews in the Bank of Amsterdam’s records, where they are easy to identify because of their Spanish and Portuguese family names, grew from twenty-four in 1609 to 106 in 1620. During the same period, the total number of account holders also grew significantly (from 731 to 1,202), but the quadrupling of the number of Portuguese Jewish account holders is a strong indication of a sharp rise in the commercial activities of Portuguese Jews in Amsterdam.5 126

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The end of the Twelve Years’ Truce in 1621 meant that the war with Spain was resumed, and the trade embargo came into effect again. Some of Amsterdam’s Jewish merchants left, and the number of Jewish account holders at the Bank of Amsterdam dropped by a quarter after 1621. Most of them probably went to Hamburg. A few of the Jews who remained in Amsterdam started doing business on the share market. In the first instance, they were the Amsterdam representatives of large international trading houses. The Antwerp trading house André de Azevedo & João de Pas, for example, transferred a VOC share on a few occasions through Miguel de Pas, its Amsterdam agent. Bento Osorio is another Portuguese name that crops up frequently in the capital accounting of the Company’s Amsterdam chamber. He too was based in Amsterdam as the representative of an extremely rich merchant, in this case André Lopes Pinto.6 For the time being, Portuguese Jews’ activities in the share market remained confined to these wealthy trading houses. The rest probably did not have enough money to deal in shares. All their funds were sorely needed to set up commercial enterprises. Was this different after 1640? Did the members of the Portuguese Jewish community suddenly have a lot of spare cash to buy and sell shares? In some cases, this was certainly so. During the 1660s the fabulously rich Antonio Lopes Suasso had nominal share capital in the VOC of around 100,000 guilders. Its market value at that time would on average have been about 450,000 guilders. At that time, the most magnificent canal-side houses, the great mansions, cost about 20,000 guilders.7 And then there was Mozes Curiel. He was a diplomat who used the less Jewish-sounding name of Jeronimo Nunes da Costa in his contacts with Spain and Portugal. He lived in a splendid double-fronted canal-side mansion at what is now 49 Nieuwe Herengracht. He also had the means at his disposal to deal in shares on a grand scale. Most Portuguese Jewish traders, though, lived in narrow streets and on the canals in the district around what is now Waterlooplein. Little is known about 127

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these businessmen, who had such names as Manuel Lopes Carvalho, Luis Gonsales de Andrada, and Rafael Duarte. The fact that there is so little information about them indicates that they were certainly not among the most prosperous residents of Amsterdam. Why, then, were they so active in trading shares? To answer this question, we have to find out what changed around 1640. This was the year that marked the start of the second big wave of Portuguese Jewish immigration to Amsterdam. This time, they came in much greater numbers than they had during the Twelve Years’ Truce. Three events had taken place within the space of a few years, and they had a major impact on the Portuguese Jews and their future in the Republic. To begin with, at the end of 1640 Portugal broke away from the Spanish crown. This had an immediate effect on the relationship between Portugal and the Republic. A few months later, in July 1641, the two countries signed a treaty that made trade between the two of them possible again. As had been the case during the Twelve Years’ Truce, Portuguese Jews immediately seized the opportunity to settle in Amsterdam and start trading with Portugal from there. The treaty with Portugal also had implications for relations between the Republic and Portugal outside Europe. The situation in Brazil was relevant to the history of the Portuguese Jews in Amsterdam. Brazil had been a Portuguese possession since the fifteenth century, but starting in 1630 part of the colony had been occupied by the Dutch when the two countries were at war. The Dutch zone was around the city of Recife, in the northeastern part of Brazil. At that time Recife was called Mauritsstad, after John Maurice, prince of Nassau-Siegen, the highest Dutch official in Brazil, who is best known in the Netherlands for having the Mauritshuis built in The Hague. This splendid building now houses the Royal Picture Gallery. The regime of John Maurice, whose grandfather was William of Orange’s brother, permitted a great deal of religious freedom. Consequently, large numbers of Jews moved to Dutch Brazil. The Jewish community 128

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there built the first synagogue of the Western Hemisphere in Jodenstraat in Mauritsstad. Following the treaty in Europe, in 1641 the Dutch and the Portuguese also signed a treaty covering Brazil, but it did not hold for long. In the years thereafter the Portuguese reconquered the Dutch area. The Jews did not wait until they were driven out. They left on their own initiative. For them, Amsterdam was the most logical destination. The third event of great import to the settling of Portuguese Jews in Amsterdam took place closer to home, in Münster, Germany. This is where a treaty to end the war with Spain—the Peace of Münster—was signed in 1648. From then on, the Portuguese Jews could recommence trading with Spain from Amsterdam. Another reason for Amsterdam’s attraction as a place for Jewish merchants to settle was that their religion was tolerated to a certain degree. The Jews did not have the same rights as members of the Dutch Reformed Church, but they were in a better position than, say, the Catholics. As early as 1639, a synagogue could be clearly seen from the street in Houtgracht (a canal that was filled in in 1874 and is now Waterlooplein), whereas Catholics could only attend mass in secret, in conventicles that were not recognizable from the street as churches. The synagogue in Jonas Daniël Meijerplein (in those days called Deventer Houtmarkt), which was first used in 1675 and still exists, was even one of the sights of Amsterdam. The arrival of Jewish merchants once again manifested itself in the names in the Bank of Amsterdam’s books. In 1625, four years after the end of the Twelve Years’ Truce, under 6 percent of the account holders were of Portuguese Jewish origin. By 1646, this figure was 8 percent, rising to 10.5 percent in 1651. The trend leveled off after that. In 1674, more than 13 percent of the Bank of Amsterdam’s account holders were Portuguese Jews. At that time, Portuguese Jews accounted for slightly more than 2 percent of Amsterdam’s overall population, which meant that they were significantly overrepresented among merchants.8 129

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A Necessary Consequence The fact that the Portuguese Jews were actively involved in trade was not attributable solely to their good commercial contacts with the Iberian Peninsula and the Spanish and Portuguese territories in America. To an extent it was also a dire necessity because they were not permitted to pursue most other occupations. In the heavily regulated economies of the Middle Ages and the early modern era, many occupations were not open to all and sundry. A tradesman or craftsman had to be a member of a guild. But all over Europe, including in Amsterdam, this was not an option for Jews. This meant they were forced to choose occupations that were not organized and regulated by guilds. Working as a merchant was one example; another was diamond cutting. These were professions that anyone could practice. It was therefore no coincidence that a diamond ring was involved in the transaction between Jacob and Joseph Pereira. Besides being traders of goods, from time immemorial Jews had been moneylenders. Here their religion worked to their advantage. In Deuteronomy, the book of the Bible attributed to Moses, which is also part of the Jewish Torah, it says, “Thou shalt not lend upon usury to thy brother” (23:19–20). For many years, the Christian Church interpreted these words as meaning that it was not permitted to charge interest on credit. Lending money without being able to charge interest was not a worthwhile activity, so Christians seldom if ever provided credit. Jews interpreted the same text rather more broadly. They did not consider Christians to be their “brothers,” so they had no problem charging them interest. The upshot of this was that many Jews worked as bankers or cashiers. Membership in a guild was not necessary for these occupations either. As a result of this, Jews got a name as money-obsessed usurers. Perhaps the best-known reflection of this is the character of Shylock, the Jewish moneylender in Shakespeare’s Merchant of 130

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Venice. This prejudice remained for centuries, even though the Christian church’s views about interest and credit changed during the Reformation, becoming increasingly like those of the Jews. Protestant religious scholars thoroughly analyzed the Bible and contended that according to Leviticus 25:35 and Exodus 22:25 it was permissible to charge interest, provided that no one got into difficulties as a result. In other words, it was perfectly alright to practice usury on your prosperous brothers, but you must not think of doing so on poor brothers. These parts of the Bible are older than Deuteronomy, and the religious scholars reasoned that Moses assumed that everyone already knew this and hence had not felt it necessary to be so specific about the difference between rich and poor. The Dutch Reformed Church, the “established church” of the Republic, adopted this view and specified very explicit rules: the maximum interest rate that could be charged to rich merchants was 8 percent, and 6 percent for less wealthy folk.9 Everyone in the Republic was thus permitted to charge and be charged interest. Usury regulations in Catholic parts of Europe also became progressively less strict, because during the Counterreformation the Catholic Church largely adopted the Protestant interest and credit rules. However, Jews had built up such a lead in finance over the previous centuries that in the seventeenth century they were still significantly overrepresented in all financial occupations. The step from moneylending and trading goods to buying and selling shares was not that great. This applied to Christian and Jewish businessmen alike. They were used to trading bills of exchange, which were used for international payments. These were also instruments that arranged payment of a sum of money after a particular period, and the merchants concerned were consequently familiar to a degree with the forward contracts that the share dealers traded in. The Portuguese Jews also had an extra arrow in their quiver when it came to trading shares because they had a strong inter131

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national network. The flight from the Iberian Peninsula had resulted in a Jewish diaspora in the most important European trading centers. Cities like Hamburg, Antwerp, and London had large Portuguese Jewish communities. The outcome, almost without exception, was that Portuguese Jews had relatives in other places in Europe, and these international contacts came in very handy when trading shares. The price of a VOC share, after all, was not determined solely by the situation in the Far East and the size of the returning Company fleets. The situation in Europe was also important. If, for instance, demand for spices increased in England, that had an immediate effect on the value of the Company’s stock of spices. European politics were relevant, too. According to the shareholder in Confusión de confusiones, war “jeopardizes the safety of the returning fleets and taxes push up costs.”10 East Indiamen were prey for the enemy as soon as the Republic became involved in a war with another European power, a frequent occurrence in the seventeenth century. The risk that a Company vessel would become the spoils of war had an immediate effect on the share price. Over and above this, in times of war the authorities in the Republic levied all sorts of extra taxes. There were general taxes to pay for armies and the fleet, and from 1672 tax was also charged on share ownership on an irregular basis. There were also high import and export taxes on goods that were traded with the enemy.11 This made it more difficult for the Company—for example if the Republic was at war with France—to sell spices and other Far Eastern goods there. In other words, a share trader who was the first to receive information that war was imminent could use that knowledge to make a great deal of money on the share market. And it was the Portuguese Jews who, thanks to their family network, could quickly and easily get wind of news from different European cities. A final explanation for the fact that so many Jews were involved in the buying and selling of shares is that the Portuguese 132

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Jewish community was also very close knit at a local level—in the city of Amsterdam. They lived close to one another and formed a relatively closed group. Within this community there was a strong group dynamic, or at least so it would appear. Once a large number of Portuguese Jews started trading in shares, many others followed. It was almost impossible for these folk not to come into contact with the share business. They only needed to step outside their front door in the morning to find themselves among traders. So says the written account of a visit made to Amsterdam by an anonymous Englishman around 1690. “At eight o’clock in the morning,” before the share traders went to Dam Square for the morning session, “shares were changing hands in Jodenstraat [Street of the Jews].”12

Brokers The involvement of so many Portuguese Jews in the share market changed the trade quite drastically. It had been the leading Amsterdam merchants who dominated this buying and selling for the first forty years after the VOC was founded. Some of them came from immigrant families—among the traders there were, for instance, many from families that had emigrated from the Southern Netherlands during the Revolt—but they were all part of the same community. They had been meeting one another for years on the exchange, where they did business together. They also regularly came across one another outside it. They lived close together—on Warmoesstraat, Nes, Oudezijds Voorburgwal, and Achterburgwal, the cross streets in that neighborhood, and the part of the ring of canals that had just been completed. The vast majority of them were members of the Dutch Reformed Church, so on Sundays, when the exchange was shut, they saw one another again, this time in church. Many of these merchant families were also connected by marriage. Antoine l’Empereur 133

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was related to a director and an active share trader through his wife’s family. Thomas Sprenckhuysen had a cousin who was part of a director’s family as a result of his marriage. L’Empereur and Sprenckhuysen were by no means exceptions. These businessmen knew one another very well indeed and preferred to arrange everything inside their own circle. The traders in the community of Amsterdam merchants consequently had no trouble finding a fellow trader to do a deal with. There was always someone in their immediate network who wanted to buy or sell a share or who knew another dealer who was interested. Equally important, though, was that these businessmen also knew who in their circle could be trusted. Sometimes, of course, this knowledge was deceptive. Hans Bouwer and Isaac le Maire both belonged to the close-knit community of merchants and had enjoyed a good reputation before they embarked upon their dubious share dealings. Bouwer and le Maire are also an object lesson about the vital importance of a good reputation to Amsterdam traders. After their fraud and misrepresentation, we should remember, Bouwer and le Maire were both disowned by the commercial community and felt compelled to flee Amsterdam. Had they remained, they would not have found anyone willing to do business with them. Because these men’s business activities and private lives were so inextricably entangled, their questionable behavior also dogged them outside the exchange. In a nutshell, a good name was everything to the Dutch merchants, and they were very cautious about taking risks with it. In principle, this was the same for the Portuguese Jews. They, too, depended on a good reputation and were part of a tightly knit community. It was so close, in fact, that Jacob and Joseph Pereira saw no need to put the deal they did in June 1671 on paper. It was not until rumors of impending war began to push the VOC share price down rapidly at the end of 1671 that it became clear that they should have done so. As we shall see later, substantial falls in prices led to tensions inside the community of share traders on 134

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figure 7.1 Hendrick Staets outside his house on Herengracht. Matthijs Naiveu, Hendrick Staets, 1683. Source: Amsterdam Museum, Amsterdam.

more than one occasion. The issue here, though, is that starting in 1640 there were two groups of traders actively doing deals on the share market—one Christian and one Jewish—and the members of the two groups knew each other only barely, if at all. The social 135

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cohesion that ensured traders thought very carefully before reneging on a deal with someone in their own group was less strong between Christian and Jewish businessmen. So how could you know who to trust? The solution to this problem was found in the form of mediation by brokers. Until about 1640, the involvement of such brokers in share dealings was rare. They were present on the exchange, in large numbers in fact. At around this time the brokers’ guild had 430 members, but they mediated primarily in bargains involving goods. The brokers had a good overview of the prices being asked and bid because they mixed with the merchants every day and monitored the trade in all the different goods closely. Equally important, they knew who wanted to buy certain wares and which traders had goods to sell. By paying the broker a commission for his mediation, a businessman did not have to search for someone to deal with himself. And the brokers were well enough acquainted with the dealers to know who could be trusted and who could not. The chance of a transaction going wrong could be considerably reduced by checking a possible dealing partner out with a broker. Not everyone could become a broker. Brokers had to be members of the guild and had to comply with the rules specified by the city authorities. A broker’s commission, for instance, was set by the authorities. Brokers were also prohibited from dealing on their own account. They were only permitted to assist in bringing about transactions, and they were banned from being a party in any deal whatsoever. The fines for breaking this rule were considerable. The 1647 brokerage ordinance decreed fifty guilders for the first offence, a hundred guilders for the second, and a further hundred for the third, plus “removal from office.”13 Amsterdam city council imposed this rule to ensure that brokers always acted in the interests of their clients and did not keep the most profitable bargains for themselves. 136

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Brokers differed in this regard from market makers like the Raphoen brothers. Christoffel and Jan Raphoen certainly did trade on their own account. They saw to it that they always had a certain sum in shares on their VOC account so that they could supply a share immediately to anyone who approached them for one. They derived their income from the difference between their buying and selling prices and not from a fixed commission per transaction. In principle, anyone could become a market maker, but it was necessary to maintain significant share capital in the VOC’s books in order to be able to sell straightaway if a buyer appeared. A market maker had to be wealthy enough, and he took greater risks than a broker because fluctuations in the share price could reduce the value of his share capital. The services provided by market makers and brokers were also different. For example, market makers were prepared to buy shares with nonstandard nominal values that were difficult to trade. Brokers, on the other hand, helped traders in the exchange find a person to deal with. And this was the service for which there was scarcely any demand in the early years of buying and selling shares. Surviving transaction documents dating from the first decade of the seventeenth century only occasionally refer to the name of a broker.14 The merchants quite simply did not need such mediation. They could hear for themselves what the share price was, they knew their possible trading partners personally, and they were also experienced in the negotiations that had to be conducted. And shareholders like Thomas Sprenckhuysen, who made only one share transaction in his life, preferred to go to a market maker. One result of the arrival of the Portuguese Jews was that the share market became less ordered and transparent. Now there were many more businessmen who might want to do a deal. But did all these possible trading partners have the money to pay for the transaction? And could they be trusted? Dealers preferred not to run the risk that a counterparty might renege on his obligations, enmeshing them in a lawsuit that might drag on forever 137

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figure 7.2 The Golden Bend of the Herengracht under construction (around 1672). Hendrick Staets’s house is located on the left, immediately after the bend in the canal. The last completely visible building on the left-hand side was Joseph Deutz’s house. Source: Gerrit Adriaensz. Berckheyde, The Bend in the Herengracht, 1671–1672. Rijksmuseum, Amsterdam.

and be very costly. This was precisely where brokers came into their own. When it came to mediating in bargains involving shares, it was very much to the brokers’ advantage that their guild also admitted a small number of Jews. This was extraordinary, and the brokers’ guild was the only one that permitted it. This exceptional position shows that the arrival of Jewish businessmen in Amsterdam was certainly not undesirable. In 1612, a maximum of ten Jews were allowed to become members, as against three hundred Christians. The rules were amended in 1642, and the ratio was changed to thirty to four hundred and thirty. It was always stated in the brokerage ordinances that Jewish members were admitted “in order 138

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to serve the Portuguese,” as if they were only there to assist Portuguese Jewish merchants.15 However, the Jewish brokers were in an ideal position to mediate between Jewish and Christian businessmen. As members of the guild, they knew the ins and outs of Amsterdam trading practices. At the same time, they were part of the Portuguese Jewish community, so they were familiar with many Jewish traders and knew the best way of dealing with them. All in all, it is not surprising that around 1640 traders started to make much more frequent use of the brokers’ knowledge of the whole population of share dealers. Not long after that, it became even more attractive to hire in a broker, because in 1647 the city council cut the brokers’ commission on share transactions. From then on, a broker received 20 cents on each nominal 100 guilders.16 This was a sharp drop compared with the old rate of 50 cents on each nominal 100 guilders. In 1647 and thereafter, dealers paid a minimum of six guilders for brokerage on a share with a nominal value of 3,000 guilders (the buyer and seller each paid three guilders). After 1647, the price was usually over 400, so the broker’s commission amounted to only about 0.05 percent of the market value of a deal. In relative terms, the cost of a broker was very modest. The cut in the brokers’ commission appears to have been a reaction to their growing clientele. Had the city council decided that these intermediaries were making their money too easily? The amount a broker actually made depended first and foremost on how good he was. The name of the broker Hendrick Staets is the one that came up most in share trades, which implies that his mediation services were highly regarded. Staets is known to have owned a double-fronted canal-side house in the Golden Bend of Herengracht. This magnificent mansion at number 460 is still known as Staetshuys (Staets’s House). He had his portrait painted by Matthijs Naiveu on the stoop of his new home. Staets was not on the breadline, that much is clear, but it is more difficult to establish whether he made all his money through his brokerage 139

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services. Staets was also an active dealer on the exchange. According to the ordinances governing the brokers’ guild, this was not allowed, but few brokers complied with the rules during the second half of the seventeenth century. It is impossible to say whether Staets grew rich through providing brokerage services in a great many bargains or by using the knowledge he had acquired as a broker for the purposes of his own deals. By the end of the seventeenth century, virtually no deals were being done on the exchange without the involvement of a broker. A notebook belonging to Jeronimus Velters, a businessman actively involved in trading shares in the second half of the seventeenth century, has survived. In it he listed his deals and which broker had mediated in them. The identity of the broker was important to Velters. In the unlikely event that a dispute arose about a bargain, a dealer’s credibility in court was greater if a broker confirmed his story. The Portuguese Jews Jacob Gabay Henriques and Isaac Pessoa were clearly Velters’s favorite brokers, although Gerrit Loot and a few others, including Hendrick Staets, are also to be found in his records. Very rarely Velters noted “without” to indicate that no broker had been involved in a transaction.17 Portuguese Jewish merchants did the same. After the Jewish diamond merchant Manuel Levy Duarte died, his documents went to the parnassim—the governors of the Portuguese Jewish community. Among the papers were many dealing slips from brokers who had mediated in his share transactions.18

Speculators It is beyond doubt that the Amsterdam brokers profited greatly from the arrival of the Portuguese Jewish share traders, but their involvement in the market was also a good thing for other dealers. First, it benefited the share market when more merchants were actively involved and more deals were done. This made VOC shares 140

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more easily tradable. Businessmen could be confident that they could always sell their share again quickly if they needed their money for something else. More important still, however, was the fact that Portuguese Jews dealt in shares in a way that differed greatly from that of the businessmen who had dominated the market during its first forty years. Obviously each individual was different, but the “average” Jewish share dealer was without doubt a speculator—or player, as Joseph de la Vega called this type of trader in Confusión de confusiones. They did not use a buy-and-hold strategy. On the contrary, most Jewish dealers only operated on the forward market. They bought forward contracts and sold them again when they had made a profit of 1.5 percent of the value of the contract, and in some cases even less. They were pursuing an investment strategy that was completely different from that of most traders during the first forty years of the Amsterdam share market. Men like Antoine l’Empereur and Thomas Sprenckhuysen bought a share to keep it for the longer term. They hoped they would receive dividends on their share and be able to sell it at a profit at some future date. For them, too, the thought that their investment fostered the Dutch trading position in the Far East was also very relevant. They invested not only in their own financial interests but, to an extent, out of patriotism too. This was far less of a factor among Jewish share dealers. They invested to get a return of a couple of percentage points, or perhaps as much as 5 percent on every guilder. The fact that the shares they were speculating in were VOC shares mattered little to them, so it is not surprising that they were frequently accused by other traders of spreading damaging rumors about the Company for their own gain. The English traveler we met earlier in this chapter had picked up on this during his visit to Amsterdam. He wrote that while these objectionable practices were also employed by other dealers, it was above all the Jews who were culpable. And he was not the only one to think so. In 1687, the Marquis d’Albeville, the English 141

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ambassador to the United Provinces, wrote to his government in London that Jewish traders on the exchange had spread the news that the French monarch, King Louis XIV, was making preparations for war with the Republic, as he had done in 1672—the “disaster year” that was still very fresh in share dealers’ memories. He was alleged to have made a pact with the Duchy of BrunswickLüneburg and the Bishopric of Cologne. The latter had also supported the French king in 1672. The share price had dropped like a stone as a result of the war of 1672, which makes it easy to understand why this news alarmed share dealers. The share price reacted to the rumors immediately. It fell from just over 500 to 485, a drop of 3 percent. The very next day it became clear that the rumor was not true, and the share price returned to its old level. The trickery of the Jews had been exposed, wrote the ambassador, but in the meantime they had made a lot of money.19 It is extremely difficult to establish whether these accusations were justified, but the way they conducted their business on the exchange made the Jewish dealers an easy target. They created the impression that they did not care whether their actions might harm the VOC. In the 1630s the share market began to transform, and that accelerated with the large-scale involvement of Portuguese Jewish traders. The Amsterdam share market developed from being a byproduct of the VOC—a company in which investors who did not want to wait for liquidation could sell their subscription—into an independent financial market. It was “the game” that dominated the share market around the middle of the century. Dealers made countless deals, one hard on the heels of the other, and tried to make a small profit on each one. To most traders, the fact that the VOC continued to send ships to the Orient and represented the interests of the Republic there was irrelevant. They were primarily concerned with being faster and smarter than the rest, chiefly by using information in an endeavor to gain an advantage over other traders. 142

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it was the beginning of March 1688 and, as it was every year, a busy time for share traders. March was the month of the annual meeting of the Lords Seventeen, the VOC’s highest executive board, composed of directors from all six chambers. The decision about the dividend to be paid was a permanent item on the agenda. In those days, Jeronimus Velters was the clerk for the city of Amsterdam and a very active share trader. Loath to miss any rumor or piece of news about the upcoming dividend, he went to the exchange and Dam Square every day. For some time, the expectation had been that this year the Lords Seventeen would decide to pay out 25 percent of the nominal value of the share capital in cash. The year before, 1687, the Company had paid out 20 percent, and twelve East Indiamen had meanwhile returned to the Republic. The total had now reached thirteen vessels laden with highly profitable cargoes, so a dividend of 25 percent seemed a logical estimate. But then Velters received some information that made him think differently. He heard from a “reliable gentleman,” in other words, 143

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someone to be taken seriously, that “in all probability” only 22.5 percent would be paid out. Velters did not doubt it for a moment. “Without considering any other items of news,” he decided “to unload the shares.” The broker Isaac Pessoa was able to sell two 3,000-guilder shares for him without delay. The buyers, Abraham Penso Felix (the older brother of Joseph Penso de la Vega) and Antonio Rodrigues, paid him a price of 556. Pessoa also sold two forward contracts for Velters. A broker by the name of Roshuijsen arranged a further forward sale of a 6,000-guilder share to Cornelis Munter. Velters arranged the biggest sale himself, though. At the exchange he made an agreement with Hendrick de Wijse about a forward deal involving a 30,000-guilder VOC share as the underlying value. These deals meant that Velters had taken a huge negative position in the Company. He sold many more shares than were registered in his account. Most of the dealers did not receive the information that the dividend might be disappointing—or chose not to believe it—because shortly after Velters’s sales the price rose to 561 and on March 12 to as much as 565. At these prices, Velters’s forward contracts would lose money because they were agreed on the basis of forward prices of 557.75 and 559. The next day, March 13, 1688, the Lords Seventeen met in East India House to decide the size of the dividend payment. The share traders knew this, and that evening tension in Dam Square rose. Merchants paced back and forth between Dam Square and East India House—a walk of only a few minutes—in the hope of hearing the latest news. Velters described the situation in Dam Square that evening in a letter he wrote a few days later to Theodore Holla, an acquaintance in The Hague who regularly supplied Velters with political news. Suddenly the price fell to 559. Everyone was very surprised and no one dared buy. The broker Gerrit Loot was trying to sell a great many shares. On one side of Dam Square people were

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saying that I was his principal. On the other side of the square the rumor was that Loot was selling for Visscher and les Paul. Yet others believed that Quina, the dealer who traded on behalf of Putmans, was behind it. And then there were a couple of individuals who thought that de Groot, who was in or around Dam Square constantly, had issued the instructions for the sales.

figure 8.1 The courtyard of Hendrick de Keyser’s stock exchange, looking toward the entrance. Source: Emanuel de Witte, The Courtyard of the Old Exchange in Amsterdam, 1653. Museum Boijmans van Beuningen, Rotterdam.

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And so it continued until half past eight, when everyone in Dam Square heard that the meeting of the Lords Seventeen had ended. They all went straight to Oude Hoogstraat, where the directors had just emerged. The share traders asked the Company’s directors what they had decided, but they remained tight lipped. “What happened in the meeting is secret, and we have stated under oath that we will say nothing about it.” Nonetheless, the dealers were not left completely in the dark about the course of the meeting because the directors looked jubilant. The businessmen deduced from this that the dividend might well be better than expected, and the price jumped instantly to 566. This did not last long, however. When it was rumored that the decision was to pay out 22.5 percent, with a further 15 percent if the merchantmen underway from the Far East arrived safe and sound, the price fell briefly to 560 before ending the evening at 563. Velters’s contracts would still lose money at these prices, but nothing was yet certain about the dividend payment, and Velters decided to bide his time. “I did everything within my power to find out for certain,” he wrote at the end of his letter to Holla, “and I think I’ve discovered what’s happening. I expect that 331⁄3 percent will be paid out in cash on April 1.” Velters immediately instructed Pessoa to buy shares, but it proved impossible that day. “Only two shares were traded today, and Gabay bought both of them. No other shares were on offer.”1

The Value of Information We do not know the source of Velters’s information that 331⁄3 percent would be paid out in cash. It has to have been someone who was close to the directors, perhaps even one of the directors themselves. Velters had good contacts with the city council thanks to his post as city clerk. Since several Amsterdam directors were on the city council, it would not be surprising if a few of them were 146

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acquaintances of Velters. Whatever the case may be, the information turned out to be correct. Before long, it was announced that a dividend of 331⁄3 percent would be paid out on April 15. Velters had to have been able to exploit the advantage of this information on the exchange. It is not possible to find out whether he succeeded, though, because he had a row with Theodore Holla, the man he told about the dividend announcement and his deals, and their correspondence ended on March 18. Share trading was also the cause of Velters’s squabble with Holla. Holla lived in Schoonhoven, but as a delegate to the States of Holland he spent a good deal of time in The Hague, and this gave him direct access to the political news. This was very important in buying and selling shares. Decisions about taxes were made in The Hague, and taxes could damage the VOC’s profitability and reduce its dividend. Were a tax to be levied on share ownership, it would directly affect the returns for shareholders. Decisions about war were also taken at meetings of the States of Holland and the States General in The Hague. Velters maintained a regular correspondence with Holla precisely in order to receive this type of news quickly and reliably. Just how important the news from The Hague was emerged, for instance, in November 1687. Velters noticed that a number of traders who were involved in Dutch politics were selling shares, and he suspected that they had information that could result in downward pressure on the VOC share price. He tried to find out at the exchange why these shareholders were issuing instructions to sell, but he did not get very far. However, “something is up, that much is certain.” Velters thought that something might have happened in relations with the County of Bentheim, just over the Republic’s eastern border, but he did not know the details. At the same time, there was talk on the exchange about recruiting nine thousand marines and plans for new regulations for trading in shares, which might also mean a tax on transactions. In short, Velters did not know exactly what was going on and wanted to 147

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find out more. He asked Holla “to nose around so that we don’t miss the boat.”2 In return for information from The Hague, Velters did some dealing on Holla’s behalf and may well have paid him too—this is not entirely clear because only Velters’s side of the correspondence has survived. Velters and Holla both benefited from the exchange of letters, but Holla did not send his intelligence exclusively to Velters, and that led to resentment. Velters found out about it at the end of February 1688. When he was in Dam Square on February 24, he saw Isaac Abenacar selling shares. At that time Velters was expecting the price to rise, but when he saw Abenacar unloading shares he became suspicious. Abenacar was the permanent broker for Adolf Visscher, an active share dealer and merchant with commercial contacts in the Caribbean, the Baltic states, and around the Mediterranean. As a rule Visscher had good information; he was not a man to give instructions to sell on a whim. At six o’clock that evening, when Velters returned to his doublefronted mansion at 577 Keizersgracht, near Vijzelstraat, he still did not know why Visscher wanted to sell. Soon afterward there was a knock on the door. It was the mailman, with a letter from Holla. The mail was a couple of hours later than normal because the letter was not correctly addressed. It said Herengracht instead of Keizersgracht. Initially the mailman had gone to the wrong house. Velters snatched the letter from the man’s hands, read it as fast as he could, and then “flew back to Dam Square.” But “Visscher and others had already got the best of it,” he wrote the following day to Holla, somewhat reproachfully. Velters was able to sell two forward contracts, one to Joseph de Medina relating to a share with a nominal value of 12,000 guilders and one for a 6,000-guilder share to Abraham del Sotto, but the price he got was worse than the one Visscher had been able to sell at earlier in the day—558 rather than 565. Visscher had stolen a march on Velters.3 To begin with, Velters was primarily angry about the stupid mistake of the incorrect address. It was not often that a piece of 148

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news provided such good opportunities to make a profit, so they should not be squandered through carelessness. But things became even worse a few days later, when Velters talked to Visscher at the exchange about the transactions of February 24. Velters found out that Visscher had also acquired his information from Holla, but in his case the letter had been properly addressed. Velters was furious with Holla and asked him to discontinue his correspondence with other traders immediately. When no reply was forthcoming from Holla, Velters broke off contact.4 Velters was unable to find a replacement for Holla in the short term, so he remained starved of political news from The Hague. As a result, he got his news solely on the exchange, after other dealers had already done deals based on the latest information, so he was always behind the times. Less than six months later, rumors were circulating that Stadholder William III was planning to invade England. This had huge implications for the VOC share price, which slumped from 547 to 463 in less than two weeks. In such turbulent times Velters wanted to get news from The Hague by hook or by crook and reluctantly resumed his exchange of letters with Holla. Once again it emerged that Velters and Holla had very different views about their correspondence. Less than a year later, Velters was warned by someone on the exchange that Holla was also passing on his expectations about the share price and his plans for buying or selling shares to Isaac les Paul and, once again, Adolf Visscher. Velters gave investment advice to Holla, and he invariably shared his feelings about investments with his acquaintance in The Hague, but it was obviously never his intention that this should be passed on to Visscher and les Paul, who were two of his leading rivals. “This makes me so angry that I’m not able to keep my feelings under control,” he wrote resentfully to Holla.5 They continued to exchange letters for a while, but shortly afterward Velters sustained a loss on some transactions he made on the basis of Holla’s information, and he once again broke off the correspondence—this time for good. 149

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News from the Orient It was significantly tougher to make profitable bargains on the exchange without a good source of information in The Hague. Even then, having a correspondent in political circles in The Hague was not enough if you wanted to be an active share trader. The shareholder in Confusión de confusiones advised as follows: If the wise speculator is eager to correspond with India in order to learn by way of England, Aleppo, and elsewhere, whether calm reigns there, whether the business of the Company is moving forward, whether its operations in Japan, Persia, China are proceeding favorably, whether many ships are sailing to the motherland, whether they are richly laden, particularly with spices, it has been shown that, although there are difficulties, information about them all can be obtained.6

In other words, it would be beneficial to a speculator to find someone in the Far East to keep him informed about what was happening there. However, that intelligence was not much use to a trader if it was simply sent to the Republic with the returning fleet. After all, the vessels’ crews would have the same news, so it was highly unlikely that information in a letter would reach the exchange in Amsterdam before the verbal reports of the sailors. It was therefore crucial to ask the correspondent to send his letters by English ships or via the land route through Aleppo in the Ottoman Empire. Only then was there a chance of an information advantage that could be exploited on the stock exchange. Velters, too, realized that a good supply of information from the Orient could yield substantial benefits. And so in 1687, when his nephew Balthasar Cosett was a commodore of the fleet and chief buyer—both important posts—and set sail for the Far East on board the Java, Velters asked him “to seize every opportunity to tell me everything about the Orient.” Above all, Velters wanted him to write about the results of the trading so that he “could 150

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have a sound knowledge” of the state of the Company. “Always send me the letters as soon as possible. There are plenty of ships sailing and you can also send them to me via England.”7 Cosett would not have disappointed Velters because he was in his uncle’s debt—Velters had lent him 4,800 guilders before he set sail. We do not know exactly what Cosett wrote; his letters have not survived. This is how Velters tried to keep abreast of the VOC’s operations in Asia. It was no good expecting the Company to provide any information at all. Meanwhile, the chief participants were given the opportunity to inspect the VOC’s books, but they represented only a tiny fraction of the entire shareholder group, and they did not share their information with anyone else. Most dealers therefore had no choice but to continue guessing about the Company’s financial position. What a difference from the situation on twenty-first-century stock exchanges. Listed companies must publish annual reports and are obliged to disclose immediately any information that might have an effect on the share price. An investor who wants to keep up to date with all this business news has a full-time job.

Dividend as a Source of Information Since virtually no financial data about the VOC was available to the ordinary shareholders, the annual announcement of the dividend was hugely important. This was the only occasion during the year when the directors gave any sort of hint as to how things were going for the VOC. “As soon as the first rumor about the announcement of the dividend starts circulating, the game begins for the speculators,” wrote Rodrigo Dias Henriques, a Portuguese Jewish share trader who conducted trades for the diamond merchant Manuel Levy Duarte.8 As the example of Velters at the beginning of this chapter showed, the active traders pounced on every rumor about the dividend in an endeavor to turn a profit. 151

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For a few weeks, all the different interpretations of gossip and news pushed the share price up and down. The shareholders were obviously interested in the size of the dividend payment because it determined how much money or spice they would be able to collect from East India House. Even more important, though, was how the dividend related to payments in previous years. The share dealers could deduce from this how well the VOC was doing. If the dividend was higher than in previous years, it meant that the Company had more cash and that profitability had improved. A drop in the dividend, on the other hand, was not good news. Likewise, if the Lords Seventeen decided to pay out the dividend in kind rather than cash, this was also interpreted as a bad sign, unless the payment was very substantial indeed. This was the case between 1635 and 1644, when the VOC paid out dividends in cloves twelve times. The shareholders would have asked themselves what on earth they were supposed to do with all these consignments of cloves, but the sheer volume of these profit distributions, and above all the regularity with which they were made, were very much appreciated, and the share price rose significantly during this period. After 1644 the dividend stabilized. There was an annual payment of between 12.5 percent and 40 percent. These are impressive figures, but they mean little, as the dividend was calculated on the nominal value of the shares. It is better to express the dividend in terms of the market price. In real terms, the average dividend worked out to between 4 and 5 percent per year. This was significantly less than the 6 to 8 percent per year that was paid in the 1635–1644 period, so it is not surprising that the share price steadied after 1644. The VOC altered the dividend slightly every year to reflect the level of trading success. Really major changes only occurred in times of war because armed conflict cut the Company’s profits severely. The enemy looked on Company ships as spoils of war, and trade embargos reduced the size of the market. Usually no dividend was paid out for a few years during and after a war. 152

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The disastrous year of 1672 and the years of war that followed had the biggest effect. In 1673, for instance, the shareholders received bonds from the States of Holland and Zeeland instead of the normal cash payment. In 1672, the government had forced the VOC to ease the Republic’s financial problems by lending it two million guilders. The government still had considerable power over the VOC because the Company was dependent on the charter issued by the States General, and the Lords Seventeen transferred this burden onto the shoulders of the shareholders.9 They would have to wait until Holland and Zeeland paid off these debts before they could get their hands on the money. The VOC paid out a dividend only once in the following five years. Then, from 1679 to 1682, there was an annual dividend payment, but the Company did not have enough liquidity to pay its shareholders in cash. Instead, the shareholders received VOC bonds—essentially a deferred dividend. The shareholders did not receive the money until the bonds matured. For the time being, they would have to make do with the interest that the Company paid them on the bonds, which was 4 percent. The VOC did not resume its former pattern of dividend payments until 1685. At that point, the share price shot up like a rocket. There was one category of shareholders who always knew how much dividend the VOC would pay and also had access to the correspondence that the Company conducted with Batavia. These were, of course, the directors. Every director was obliged to own a substantial amount of share capital. The Amsterdam directors had to have invested a nominal sum of at least 6,000 guilders in the VOC. This rule was intended to make the directors act in the Company’s interests, since poor policy would have a direct effect on the value of their share capital. The directors were free to trade in VOC shares—provided that their own shareholding did not drop below the limit specified in the charter. Unlike the situation nowadays, insider trading was not prohibited, and the directors probably tried to benefit from their inside information on the exchange. 153

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They were in any event accused of abusing their special position on the share market by the authors of pamphlets published in the early 1620s, around the time of the first charter renewal. The pamphlet Korte aenwysinghe der Bewinthebbers Regieringe (1622) suggested that the directors had tried to deceive other traders by selling shares, thus creating the impression that things were going badly for the Company. The share price reacted sharply because other dealers reasoned that the selling must mean that bad news was on the way. But of course bad news was far from the reason why the directors had sold shares. They did it solely to put downward pressure on the price. As soon as the price fell, they got their underlings to buy up large quantities of shares at the reduced price. If the bad news subsequently failed to arrive, the price would recover, and the directors would have made a profit.10 There are almost no records of transactions by directors to be found in the VOC’s capital accounting. Yet Jeronimus Velters, who became a director of the Amsterdam chamber in June 1694, was still active on the exchange during his directorship. In July of that year, for example, he built up a substantial position on the forward market for VOC shares. He sold forward contracts for a total nominal value of 15,000 guilders—but not in his own name. Instead he asked the brokers Jan de Wilhelm and Jacob Gabay Henriques to make the bargains for him.11 They were only too pleased to do it—they were still prohibited from taking a position on the market, but everyone ignored this ban. It is clear that Velters did not want to raise suspicion that he was engaged in insider trading. He would certainly not have been the only director who did business through an intermediary in order to remain behind the scenes. The extent of such practices is unclear, however, because deals like these can only be reconstructed if a personal archive has survived, and this is very seldom the case. Not all directors were secretive about their transactions. Coenraad van Beuningen was extremely active on the market and made no effort to hide anything. We will read about the huge risks he took on the forward market later. 154

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News from Middelburg If an Amsterdam trader was the first and only person with certain information, he could try to use it to make some profitable deals on the exchange. But in the trading community everyone watched everyone else like hawks, so intelligence never remained secret for long. Opportunities to make profits disappeared just as quickly because the price changed fast. The speculators could also try to exploit their knowledge outside Amsterdam. The VOC, we should remember, had six chambers, all of which organized capital subscriptions in 1602. This meant that as well as shares in the Amsterdam chamber, there were also shares in the chambers of Hoorn, Enkhuizen, Delft, Rotterdam, and Middelburg. The shares in the different chambers were not interchangeable. A share in the Delft chamber, for instance, could not be transferred in Enkhuizen, where it gave no entitlement to a dividend either. In all other respects, though, they were identical. The same dividend was paid out on all shares and, if the Company were to be liquidated, these shares had the same rights to the proceeds. So the shares in the VOC’s smaller chambers could also be traded. It is known, for instance, that during the first decade shares in the Enkhuizen chamber changed hands just as frequently as Amsterdam shares. The fact that around half of these bargains were struck by Amsterdam merchants who had invested in more than one chamber when the VOC was founded shows that Amsterdam was the undisputed center of wheeling and dealing in shares from the outset.12 While the Amsterdam market continued to develop rapidly, there was little activity in Enkhuizen, Hoorn, Rotterdam, and Delft—the towns with the small Company chambers. The capital accounts of these chambers have not survived, so we know very little about share trading there. The records of a court case do, though, reveal that in 1689 Catharina Pieterson failed to find a buyer in Delft for her 3,000-guilder share in the 155

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Delft chamber. It would seem that there was almost no trading in shares in Delft at the end of the seventeenth century. Through her contacts, Pieterson issued selling instructions to Gerrit Loot, an Amsterdam share broker, who sold it to Manuel Mendes Flores, a very active Amsterdam dealer.13 Apparently one needed to be on the Amsterdam exchange to do deals in Delft shares too. There was active trading, though, in the shares of the Middelburg chamber, the second largest in terms of share capital. Trading was not on the same scale as Amsterdam, but deals were done on a daily basis. Like their colleagues in Amsterdam, the Middelburg traders tried to be the first to get price-sensitive information in order to strike profitable bargains. They were, of course, interested in exactly the same information as the Amsterdam share dealers, but the latest rumors and snippets of news were not necessarily available in both places at the same time. Jeronimus Velters realized this and began a frequent correspondence with Middelburg. The strategy was simple. Velters forwarded the information he got in Amsterdam straight to his Middelburg correspondent. Initially, this was Mark Fletcher, a man about whom little is known other than that he went bankrupt in 1709. Later it was Pierre Macaré, a wine merchant whose family originally came from Antwerp.14 In return, Velters was kept abreast by letter of the news that was circulating on the exchange in Middelburg. When Velters received all kinds of information from the Far East in September 1676, he passed it on to Macaré at once. Velters wrote that he expected that the cargoes of the last three East Indiamen to arrive would fetch between “1.3 and 1.4 million guilders,” so there was “no need to doubt the dividend.” There was also news that the rulers of Japan and the Chinese region of Canton were becoming more predisposed toward the VOC. The Cantonese ruler had presented the VOC governor with gifts when the latter came for an audience, and in Japan “very advantageous proposals were made.”15 Velters hoped that this intelligence would not yet be available in Middelburg and that Macaré 156

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would be the first, with this good news in mind, to do deals. It was also in Velters’s interests for him to share this information because he traded on behalf of an account that he shared with his correspondents. If Macaré succeeded in making a profit, Velters shared in it. Velters also struck bargains in Amsterdam on the basis of news that arrived in Middelburg first. In the 1670s this could have been information about the war with France, which had been taking place outside Dutch territory since 1674. Not infrequently— particularly when French troops were in the Southern Netherlands— reports about battles and troop movements reached Middelburg before they got to Amsterdam. This happened in August 1675, when Mark Fletcher wrote to Velters to tell him that France had lost a battle. “I very much hope that the news you wrote me proves to be true,” replied Velters to Fletcher on August 6, 1675. Immediately after the mail from Middelburg had arrived, Velters entered into three forward contracts in the expectation that the share price would drop. Whether these deals would make a profit was highly questionable, though, because Velters did not get confirmation of the news from Fletcher. Instead, he heard that a VOC merchantman had been taken by a Turkish privateer. If that turned out to be true, it would push the price down rather than up.16 Which of the two reports was true? And what should Velters do if they were both accurate? This was a tough question, and Velters was not the only one wrestling with it. The shareholder in Confusión de confusiones warned the philosopher and the merchant that they should be careful and not make any rash decisions every time they got wind of some news, for even though everything concerning India is favorable, nevertheless one would have to inform himself also about the European conditions: as to whether no disquieting naval rearmament is being undertaken, whether alliances are causing concern, and whether other (warlike) preparations could bring about a collapse 157

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of the price of the stocks. Therefore we have seen on various occasions that one portion of the speculators would buy on the strength of the Indian news, while another sells on the basis of the unclear European situation.17

In theory, a speculator who was the first to get important information could make a lot of money on the exchange. On many occasions, though, there was so much news—certainly during the turbulent 1670s—that it was difficult to separate one report out from all the other intelligence. This meant there was certainly no guarantee of a profit either. Similarly, Velters and his Middelburg correspondents were by no means successful all the time, and this repeatedly led to tensions. To start with, Velters switched from Fletcher to Macaré, but he quarreled with him after two years. At the end of August 1677, Velters felt impelled to write to Macaré’s father. “Your son constantly fobs me off with foolishness and makes poor deals time after time!”18 Velters asked Macaré Sr. to ensure that his son passed on better information. The situation did not improve, so Velters broke off contact with Macaré and for the time being did not look for a replacement. Ten years later, Velters wanted to start doing business in Middelburg again, but the bickering with Fletcher and Macaré was still reasonably fresh in his memory, so he opted for a different strategy. From then on, Velters tried to use only his Amsterdam information in Middelburg and searched for someone who could execute orders for him on the Middelburg exchange. He made inquiries in Amsterdam about who might be suitable. Through the Amsterdam Portuguese Jew Samuel Gomes Cotinho, he finally found Isaac Semach Ferro.19 He would send his transaction instructions by mail to Semach Ferro in Middelburg, although Velters was not the only one to use Semach Ferro’s services. Semach Ferro received powers of attorney from a series of leading Amsterdam Jews to trade in shares in Middelburg. David de Pinto, Jacob Nunes Henriques, Mozes Nunes Henriques, Manuel 158

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de Belmonte, David Gabay Henriques, Jacob Gabay Henriques, Abraham Penso Felix, Moses Henriques, Manuel Mendes Flores, and Salomon Aberbanel Sousa all did business with him.20

Jewish Networks The Portuguese Jewish businessmen who gave Isaac Semach Ferro power of attorney to deal on their behalf in Middelburg probably also tried to use the knowledge that they had in Amsterdam to create an information advantage in Middelburg. This is not surprising because the Portuguese Jews, in particular, were well known for their close-knit information network, which they owed to the diaspora in the most important European trading centers. Did they consequently have more and better information than, say, Jeronimus Velters? There are no surviving exchanges of letters involving a Jewish dealer dating from the period when Velters was corresponding with Holla, Fletcher, and Macaré. The only correspondence from a Jewish trader during the seventeenth century dates from the 1690s, in other words, a few years after the publication of Confusión de confusiones. The letters were written by Rodrigo Dias Henriques, who traded on behalf of the diamond dealer Manuel Levy Duarte. Usually they exchanged views about investment decisions in person, but if Levy Duarte was absent from Amsterdam—he went to Antwerp regularly—he was kept up to date by letter. Dias Henriques had good foreign contacts. He corresponded with London, Paris, and the Orient. His best information, though, came from Portugal. It was from there, for instance, that in November 1691 he received the news that a number of East Indiamen had been seen off the Portuguese coast. This flotilla was heading for the Republic. Dias Henriques had picked up fairly detailed information about the cargo. He even gave Levy Duarte an estimate of the value of the pepper the ships were carrying.21 The letter does 159

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not reveal how he came by this information, but it is possible that Portuguese craft—fishing boats for example—had established contact with the VOC vessels. The news was then probably brought from Portugal to the Republic by a merchantman. There was intensive shipping traffic between the two countries, and a small merchant boat could get the intelligence to Holland from Portugal faster than the large, cumbersome, and slower VOC vessels. This Portuguese correspondent had important information on numerous occasions. Dias Henriques heard from him in July 1697 that he had talked to a man who had sailed as a passenger on a Portuguese East Indiaman. This man recounted how a few VOC vessels had been attacked in the Bay of Bengal by French and English ships, but the Dutch had been able to continue their voyage. Based on what he had learned, Dias Henriques decided to buy a forward contract that he hoped to settle at a profit on September 1.22 On days when Dias Henriques received messages like this from overseas, he had an information advantage over other traders, who had to wait until the crews of the VOC fleet docked in the Republic and the seamen could talk about their adventures. Jeronimus Velters had no informants in England or Portugal, so at such times he was one of the dealers who did not get information until it became public knowledge. At times he was only too well aware of this. When the VOC share price slumped in August 1688, he wrote to Theodore Holla, saying that it would have been better if he could have provided “somewhat more information” because many other traders “have the same knowledge as me, and so there is not much I can do.”23 But of course the international network of Dias Henriques and other Portuguese Jews did not produce a constant information advantage. At times when there was important news to report from The Hague, businessmen like Velters, with good connections in the Republic’s hierarchy, held all the trumps.

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There was a new game in the share trade every day, and the traders with the best information on that day won, so everyone kept a close watch on everybody else. In September 1697, for instance, Rodrigo Dias Henriques noticed that many Christian dealers were selling shares. He did not have a clue why. He had not heard any news indicating that the share price could drop. He wondered for a moment whether he too should sell his shares, but in the end he decided to trust his own information and kept his position in the VOC. In his next letter, he wrote that he had heard talk of severe storms at sea and that perhaps some VOC ships had run into difficulties. Meanwhile the share price had dropped 4.5 points, but until he got confirmation of the rumors, Dias Henriques wanted to hold on to his shares.24 At the same time, of course, the Christian traders were watching the Portuguese Jews. At the beginning of September 1688 Velters actually went up to a dealer named Alvares and asked him why he had sold shares, but Alvares was not prepared to tell him.25 The most closely watched, though, were the handful of English traders who did business on the exchange. During the second half of the seventeenth century, there was always a threat of war emanating from England, and it was only to be expected that the English would be the first to know if it was serious. In July 1687, this did indeed appear to be the case. The English traders sold their shares and Velters heard from them—“and they are the people who should know”—that thirty English men-of-war had set sail. “God save the East Indiamen,” he wrote to Holla. His informant in The Hague would have been extremely useful at that particular moment in order to unearth what was going on, but Holla had just returned to his home for a vacation. “How can you go to Schoonhoven at a time like this?” Velters asked despairingly.26 It later emerged that the English were wrong too. A new war between England and the Republic was not—or at least not yet—in the cards.

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The Newspaper Share trading was Rodrigo Dias Henriques’s profession. He was hired as an exchange agent by Manuel Levy Duarte and a few other Portuguese Jews—among them, from 1697, the immensely rich banker Francisco Lopes Suasso, who financed both the Spanish king and Stadholder William III and hence had good political connections. Essentially, they employed Dias Henriques to execute transactions on the exchange on their account. Jeronimus Velters had a busy job as city clerk but was nevertheless able to visit the exchange often and correspond frequently with his informants. If he did not have the time himself, he sent a servant in his stead. It was only by investing so much time and trouble that the two traders were occasionally able to have unique information that they could instantly exploit on the exchange. Speculators who did not have the opportunity to go to the exchange daily and write letters to gather information on a regular basis were not able to compete. They could, of course, follow the example of Levy Duarte and Lopes Suasso and retain an exchange agent, but that was not cheap—someone like Dias Henriques charged fifteen guilders per transaction. People who thought this was too expensive could show their faces at the exchange from time to time to hear the latest news, but by then it was too late to strike profitable bargains on the basis of that information because everyone had already heard it and the share price had already responded to the new intelligence. The same applied to information they read in the newspaper. Although various weekly newspapers published in Amsterdam in the second half of the seventeenth century carried reports about the VOC flotillas and their cargoes, this information was always too late for share traders who wanted to turn a quick profit of one or two points on the share price. The Ordinaris Dingsdaeghsche Courant of September 27, 1667, provides a good example. The newspaper reported news from The Hague that was two days old. 162

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Sailors who had arrived in the city recounted that on the ninth they had been off the English coast with the VOC flotilla, which consisted of nine vessels. The fleet was in good condition, but initially there had been twelve ships. Three had lost contact with the others one foggy day just to the east of the Cape of Good Hope.27 This was without doubt extremely interesting information for the Amsterdam share traders, but it was doubtless already known before the newspaper hit the streets. There was a fast mail service between Amsterdam and The Hague. There were two mail coaches a day that took five and a half hours to make the journey, so merchants who maintained correspondence with The Hague would have received this news on the 26th at the latest. At that time the Ordinaris Dingsdaeghsche Courant still had to be composed, typeset, and printed. By the time the newspaper was ready, it was already old news to the speculators on the exchange. With so many traders all jammed together, information traveled fast, and the exchange doorman—the custodian of the exchange building—wrote important news in chalk on a slate so that all those present could read it. A trader without a personal information network needed to have luck on his side to get the better of speculators. How different things had been in the days of Jacques de Velaer and Antoine l’Empereur, during the early years of the VOC. Around 1610, de Velaer would walk round to the exchange to hear the latest news, which he then passed on by letter to his uncle l’Empereur in Leiden. L’Empereur then based his investment decision on this information and sent his instructions to de Velaer. This would take a few days. By then any chance of making a short-term profit had already passed, but this did not really worry l’Empereur. He invested for the long term, for the dividend that he hoped to receive, and to support the VOC. There were still dealers like l’Empereur in the second half of the seventeenth century. De la Vega referred to them as “the princes” in his categorization of the “three classes of men” who operate 163

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on the stock exchange, the others being the merchants and the speculators. Every year the princes enjoy the dividends from the shares that they have inherited or have bought with money of their own. They do not care about movements in the price of the stocks. Since their interest lies not in the sale of the stock but in the revenues secured through the dividends, the higher value of the shares forms only an imaginary enjoyment for them, arising from the reflection . . . that they could in truth obtain a high price if they were to sell their shares.28

The “princes” owned a significant proportion of the Amsterdam chamber’s share capital, but as the seventeenth century progressed they became less and less visible in the trading. The buying and selling of shares was controlled by speculators—“gamblers” or “players” in de la Vega’s terminology—who did not have significant capital in their VOC account but traded in derivatives on a grand scale. These two groups operated more and more independently of one another during the last decades of the seventeenth century. The players shifted their riskiest deals from the publicly accessible exchange and Dam Square to trading clubs.

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9

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on march 7, 1667, Sebastiaen da Cunha was sitting in a nearly deserted courtroom at the Supreme Court of Holland in The Hague. The only others present were his lawyer and the justices of the court. And this was not the first time. Last year, the defendants in this case—Michiel Rodrigues Mendes, Isaack Mendes da Silva, Mozes da Silva, Mozes Machado, Joan Corver, Luis Gonsales de Andrada, Manuel Lopes Villareal, Gerrit van Beuningen, and Cornelis Lock—had failed to appear on three occasions. Two years before, in early 1665, da Cunha bought a forward contract for the delivery of a VOC share from each of these men. He soon regretted it, though, because later that same year the Second Anglo-Dutch Naval War broke out. This was to become the war in which Admiral Michiel de Ruyter acquired his definitive status as a national hero after the Four Days Battle and the Raid on the Medway, but at the beginning of the hostilities it was, of course, by no means certain that the Republic would emerge from the conflict covered in glory. There was a very good chance that VOC merchantmen would be attacked at sea and lost. The 165

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VOC share price fell sharply during the first year of the war. From an average level of 460 in 1664, it dropped to 315 in September/ October 1665—a fall of over 30 percent. Da Cunha saw his losses mounting with every point that the share price slumped. In no time at all, the price had gone down so much that he would lose 10,000 guilders on the forward transactions. If this were not bad enough, the Dutch fleet then suffered a resounding defeat off Lowestoft on the English coast. Share traders feared that this was the advent of a period of English domination at sea—a huge threat to VOC ships. The price collapsed further, and da Cunha’s losses mounted to 25,000 guilders, which at that time was enough to buy the very finest canal-side mansion. The settlement date of the contracts was approaching, and there was not a glimmer of a recovery in the share price. What was da Cunha going to do? His loss was huge. He could never come up with that much money. He could go bankrupt, but if he did, he would have to spend the rest of his life in poverty. Alternatively he could flee Amsterdam, but then he would have to find another way of earning a living. There was one further option—he could go to court to get the contracts declared null and void. The hearing of the Supreme Court of Holland started, and the judges ascertained that the defendants had failed to appear for the fourth time. This meant that, come what may, the substance of the case would now be heard. Da Cunha’s lawyer briefly pleaded the case. In 1665 his client had bought forward contracts for VOC shares worth “many thousands of guilders” from the defendants. The defendants misled the claimant, because later they were unable to prove that they actually had the shares that were being sold forward in their possession at the moment they entered into these transactions. His client had notified the defendants that he wanted to be given back their parts of the contracts after they had been torn up. They refused to do this, however, and therefore his client was now taking them to court. 166

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Da Cunha demanded that the court declare the contracts null and void because the defendants had acted contrary to the edicts banning naked short selling. It did not take long for the judges to arrive at a judgment. They declared the contracts null and void and of no value whatsoever and ordered the defendants in their absence to hand over the tornup contracts to da Cunha and pay the legal costs.1

Honor and Trust The lawsuit between Sebastiaen da Cunha and the nine dealers with whom he had signed forward contracts showed that the foundations supporting forward trading in VOC shares were shaky. Huge sums were involved in the forward market. Many traders turned over amounts of money that were vastly bigger than the balance in their VOC capital account. For example, a record has survived of the forward deals done by two traders—Jacob Athias and Manuel Levy Duarte—in 1683 and 1684. Their monthly turnover of forward contracts for VOC shares ranged from 200,000 to 2,000,000 guilders a month.2 During this period their nominal position in the Amsterdam chamber’s books never went above 3,000 guilders, and in June 1684 they even liquidated their position.3 This meant that their bargains were naked short sales. They sold shares for future delivery that they did not own. This had been prohibited since 1610, when the edict banning naked short selling was first promulgated, and it was consequently impossible to enforce fulfillment of the contracts relating to the bargains struck by Athias and Levy Duarte through the courts. As they had done in regard to da Cunha’s deals, judges always ruled that the contracts were null and void. Forward contracts were entered into on the basis of trust. A dealer only sold them if he was confident that the vendor would fulfill his obligations, since no help could be expected from the legal system in the event that he reneged. This represented a big 167

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risk because the forward trade involved substantial sums. In the second half of the seventeenth century, a 1 percent drop in the share price meant a loss on average of 150 guilders for a buyer with a standard forward contract. If, like da Cunha, a trader signed numerous contracts, losses could mount lightning fast, and this might tempt him to welsh on his commitments. The loss had to be really substantial, however, before a dealer was actually tempted to go back on a deal, for in the Republic failure to fulfill contractual obligations was considered to be utterly beyond the pale. Merchants liked to project themselves as men of honor. The printed contracts for forward trades in VOC shares stressed this several times. The space where the numbers of parties had to be filled in was preceded by the word “honest,” and at the bottom of the contract it was stated once more that the dealers were “men of honor.” In court cases a trader never failed to underline that he was a “merchant of honor,” thus implying that he never intended to have a dispute with the other party. In Confusión de confusiones, finally, the shareholder advises the merchant and the philosopher not to get involved in trading forward contracts straightaway. He recommended that they begin by buying options, for “even if you do not gain through the options the first time, you do not risk your credit, and you do not put your reputation in danger.”4 In other words, a good name and reputation were the most important assets of early modern businessmen, and they did not risk them lightly. As far as da Cunha was concerned in 1665, maintaining his honor was outweighed by the loss he would sustain on the forward contracts he had entered into that year. He summoned his counterparties to appear in court, and he emerged from the courtroom victorious. According to Joseph Penso de la Vega this was described by share traders as “appealing to Frederick.” They were referring to Stadholder Frederick Henry, during whose administration (1625–1647) the edict prohibiting naked short selling was promulgated again on two occasions, in 1630 and 1636. It is quite 168

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possible that the dealers used this expression in their conversations, but it is nowhere to be found in notarial instruments and reports of court hearings. In such documents the traders went no further than to “invoke the edicts prohibiting naked short selling.” Da Cunha triumphed in court, but in fact all those involved in this case were losers. Da Cunha could not show his face on the exchange for the time being, and his vendors could whistle for the money they had been counting on. It shows how in many cases the regulations enabled buyers of forward contracts to get the court to declare deals null and void, and this was potentially a massive threat to the forward market. If someone like da Cunha rebelled every time the share price dropped, in the end no one would be prepared to enter into any more forward contracts. It goes without saying that brokers did their very best to establish the reliability of all the market players, but with the stupendous sums involved in this trade, the behavior of possible counterparties always remained an uncertain factor, particularly during times of large price swings and accompanying losses.

The Collegie van de Actionisten Trading Club In the second half of the seventeenth century the precariousness of the forward trade became a progressively trickier problem. Forward contract trading had grown dramatically since about 1640, which would not have caused any problems had the VOC share price been reasonably stable. But in the early 1650s this ceased to be the case. The year 1652 saw the outbreak of the First AngloDutch Naval War, which took a heavy toll on the share price. The price recovered after the Republic and England made peace in 1654, but eleven years later, in 1665, the next war started. The instability of the price increased the risk of substantial losses in the forward trade and hence also the chance that dealers would fail to honor their commitments. 169

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It would never be possible to eliminate completely the risk of the counterparty reneging, but it could certainly be reduced. The forward traders did this by conducting business in trading clubs. We do not know when this practice started. The earliest reference to such an association dates from 1672, but it is possible that there were trading clubs in the 1660s and even the 1650s. This, after all, was the period when the VOC share price started to fluctuate sharply, which would have increased the likelihood of a merchant’s failing to fulfill his obligations. The clubs had their own rules. The members all knew one another, dealers were probably only admitted through the intercession of existing members, and, perhaps most importantly, members who failed to comply with the rules of the meetings were excluded from further participation. This was all very different from the exchange and Dam Square. The exchange was a public building and, of course, Dam Square was accessible to everyone. Anyone could mingle with the share dealers and take part in trading. Furthermore, there was no one who supervised the trading on the exchange and in Dam Square. Dealers could call on “good men”—usually very experienced and eminent merchants—to act as arbitrators in the event of a dispute, but by then it was too late. The dispute had already arisen, and in practice it was not easy to get traders to come to an amicable settlement. Bargaining was most likely supervised in the exclusive trading clubs, although this cannot be established with certainty. It is suggested, though, by the name of one of the share traders’ clubs: the Collegie van de Actionisten. In the Netherlands of the seventeenth century an actionist was a share trader, and the word collegie was used for associations of people with common interests, like guilds, but also for managerial meetings. The choice of the name could indicate that this club was not just a casual gathering of share dealers but that there was a board that chaired trading sessions and kept an eye on the deals that were done. 170

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Given the history of merchants’ clubs in the Republic, it would not have been odd to have supervisors present. There was a club of bulb dealers in Haarlem during the tulip mania of 1636 to 1637. We know that it was chaired by a board of men—tulip experts—who ensured that everything was done properly and who could intervene if a spat arose between two dealers.5 The name of this club in Haarlem—Collegie van de Blommisten—bore a striking resemblance to the name of the share traders’ club in Amsterdam. This strengthens the theory that there were also supervisors present in the Collegie van de Actionisten. The club met in a tavern, De Plaetse Royael on Kalverstraat.6 Looking from Dam Square, it was on the left-hand side on the corner of the first side street, Papenbroekssteeg. The members were able to meet there every evening, which brought to four the number of places in the city where share traders could encounter one another. First thing in the morning deals were done on the streets of the Jewish district, and later on in Dam Square. The exchange opened at around noon, and the dealers gathered there. After the exchange closed the businessmen returned to Dam Square to continue striking bargains, and then in the evening, provided they were granted entry, they could go to De Plaetse Royael. Little more is known about the share traders’ clubs. The Collegie van de Actionisten was most likely not the only one. In Confusión de confusiones, Joseph de la Vega refers to “clubs,” and the anonymous Englishman, whose account of his travels—as we read earlier—included comments on the Amsterdam share trade, also reported that there were “Jewish clubs,” but we have no recorded names for any of them.7 The English traveler’s comment creates the impression that share traders’ clubs were exclusively Jewish, but this was not so. We know that Jeronimus Velters and Hubertus Beens attended the Collegie. There are also indications that Meindert Rost, one of the most active dealers, did business in one of the clubs. None of these men was Jewish. This does not alter the fact that the notebook used by Manuel Levy Duarte 171

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and Jacob Athias to record information about forward deals— which in all probability were done in the Collegie—shows that the overwhelming majority of the members were of Portuguese Jewish stock.8 Fortunately we do know how business was done in the clubs. The members were not dealers who wanted to buy a share in order to keep it for a couple of years. On the contrary, it was a speculation game that was played fast. In a letter dated November 1, 1691, Rodrigo Dias Henriques explained how he played this game to Manuel Levy Duarte, who had instructed him to trade shares. At the end of October 1691 he bought a contract for a share with a nominal value of 3,000 guilders at a forward price of 489.5. Immediately afterward he sold a forward contract for a VOC share with an underlying value of 3,000 guilders to another businessman at 489.75. After these contracts were offset against each other, he was left with a profit of seven guilders and fifty cents. The transactions done in the clubs very rarely resulted in the actual delivery of a share. The trading was done solely on paper, so the members of the Collegie only dealt in forward contracts. They were easy to arrange, without having to pay a penny in cash, and they could cancel each other out. The seven and a half guilders that Dias Henriques earned was never going to make him a rich man, but of course these were not his only deals. He traded forward contracts day in and day out, hoping to make a small profit on each one, which when added together ultimately represented a tidy sum. Dias Henriques had complete confidence that he would make a great deal of money in this way, for he ended his letter with the words, “This little game can make us much more money than charter parties for ships sailing for England!”9 The way the share trading clubs worked—members tried to make a few percentage points of profit by doing deals among themselves—must have generated a tense and sometimes uncomfortable atmosphere. After all, one man’s profit usually meant another man’s loss. Many participants in the Collegie, however, did 172

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not make profits and losses on transactions personally; many of them were acting on behalf of someone else. As we saw earlier, Dias Henriques acted on behalf of Levy Duarte. Ten years before, that same Levy Duarte had attended the trading sessions himself and—with his business partner Jacob Athias—also did deals for others, including Luis Alvares in London and Olympe Mancini, countess of Soissons, who lived in Brussels. Because many exchange agents traded in the Collegie, one member’s profit was in many cases another dealer’s client’s loss.

Settlement It is not entirely clear how the members of the clubs settled their transactions. They probably met once a month in a special session to offset all outstanding obligations. It was the same outside the clubs. The contracts that expired on the first of the following month were settled toward the end of the month, around the twenty-fifth. Almost without exception, all forward contracts specified the first of the month as the end date. This process was known as rescontre in Dutch and “rescountering” in English. The name suggests that it was not a Dutch or English coinage. The Italian word riscontro means “settlement”; rescontre was derived from this word and over the years acquired the connotation of clearing an account. Settling financial obligations in a central meeting has a long history in Europe. During the Middle Ages, when international trade was still largely based on land transport, merchants did a lot of business at annual fairs—the ones in the Champagne region of northern France were the largest and most famous. The presence of businessmen from all over Europe in one place made these fairs ideal venues for doing international deals. The concentration of traders also presented an opportunity to make the payments needed for all those international bargains in an efficient manner. 173

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Take the case of an Italian merchant at such an annual fair who had delivered a consignment of salt to a Dutchman. The Dutch dealer had to pay the Italian for it. However, if the Dutch trader happened to have sold a load of timber to a Spanish businessman, it was simpler if the Spaniard paid the Italian. This is how all outstanding payments were set off against one another during the annual fair. In practice, of course, things were never as simple as in this hypothetical case. People would have had to rack their brains to come up with an efficient settlement method, but if they did, there was little or no need for coins actually to change hands between the merchants. By the mid-seventeenth century, as more deals were done on the VOC shares forward market and forward trading was standardized to such an extent that all contracts expired on the first day of the month, it also became worthwhile for the traders to organize a central offsetting session—the monthly rescountering. Dealers were not obliged to participate, but most of them did because taking part made it easier for them to settle their contracts efficiently. Those who wanted to settle their positions sat together at a big table and stated their outstanding obligations. The web of deals that had been made between them gradually became clear. Dias Henriques, for instance, reported that he had sold a contract for a VOC share with a nominal value of 3,000 guilders for 489.75 and had bought another for 489.50. It was then possible to transfer the contract that Dias Henriques had bought to the dealer to whom he had sold the other contract. In return for this, Dias Henriques received seven and a half guilders from the trader to whom he had sold. His two counterparties then tried to cancel out their contracts against other transactions. Like the settlement sessions at medieval annual fairs, the monthly rescountering generated an intricate puzzle. These rescountering meetings made the merchants very conscious of their trades. While they were at that big table they could see how all their deals interacted. And they also saw that they 174

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were all dependent on one another. If one trader reneged, his counterparties would run into difficulties when the time came to fulfill their obligations. Those dealers were in turn tied to other participants through their contracts. Those seeking to settle their positions knew that a commitment that was not fulfilled could cause the whole rescountering operation to collapse. They did not want that on their consciences and consequently did everything in their power to settle their contracts properly. In other words, the rescountering meetings also helped prevent people from going back on their bargains. Sometimes the puzzle that emerged around the big table could not be solved. Contracts were left over that could not be set off against other transactions. They could be postponed to a later rescountering meeting. This was referred to as rolling over, but doing so was not necessarily agreed with the counterparty with whom the contract had been entered into originally. The forward price of the first contract was increased slightly in the case of rollover, as an interest payment for increasing the term of the contract. Usually this surcharge was some 4 percent per year.

Shares as Collateral At the end of the rescountering meeting a dealer could find himself still holding contracts that he was unable to offset but did not want to extend, because the extended price was too high, or ones he was unable to extend because he could not find anyone who was prepared to increase the term of his contract. There was no other choice but to accept the remaining shares in accordance with the terms of the forward contracts. The traders were not always prepared for this, particularly if they had gone into the rescountering meeting with the idea that they only needed to settle price differences with their counterparties. If the unexpected outcome was that a dealer had to take delivery of one or more shares, it 175

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meant that he had to come up with a huge sum of money. This was because he suddenly actually had to buy the shares concerned and also had to pay the full price agreed in the forward contract. In the second half of the seventeenth century, a share with a nominal value of 3,000 guilders almost always cost over 12,000. The average share trader did not have that much money in his account with the Bank of Amsterdam (the Wisselbank). In those days, men with good jobs—VOC captains, for instance—only earned eighty guilders a month.10 The upshot was that, in the unlikely event that traders had to accept a share, they tried to borrow money on it, giving the share they had received to a lender as collateral for a loan. The share could then be paid for with the loan. This also meant that something needed to be arranged quickly, but fortunately things did not have to be done within twenty-four hours. The rescountering meeting took place around the twenty-fifth of the month, but the contracts did not expire until a few days later, on the first day of the following month. There was also an unwritten rule among share traders, as the broker Hendrick van Meijert declared before a notary in 1659, that the parties to a forward contract had a further two weeks to arrange the delivery of and payment for the share.11 Rich Amsterdam residents—and there were quite a few of them at that time—were only too pleased to lend money against a VOC share as security because there was only a small chance that he (or she—the ranks of lenders also included rich widows) would never see his money again. If the share trader was unable to repay the loan, the lender could always recoup the principal by selling the pledged share on the market. All the same, this type of transaction was not entirely risk free for the lender. The price of the VOC share could drop during the term of the loan, so the share that served as collateral was worth less. The lenders took this into account when they entered into the transaction. It was extremely rare for a lender 176

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to put up the full market value of the collateral. A margin of safety was usually built in. This margin—currently referred to in financial circles as a haircut—could be as much as 40 percent of the share’s market value. Traders who could not borrow the full market value had to make up the difference with the share price using their own resources. The variation in the margin that the lenders applied depended on two factors. The first concerned the person who wanted to borrow money on the share. If the dealer was reliable, affluent, and above all creditworthy, had always honored his commitments in the past, and had never given any indication that he took irresponsible risks, it was quite possible that he would be lent the full market value of his share. A less well-known dealer, on the other hand, who approached a lender for a loan on a share, may on occasion have had to accept a significant haircut. Manuel Levy Duarte and Jacob Athias, for instance, regularly received loans of some 60 to 70 percent of the market value of their share.12 Did the lenders have their doubts about the creditworthiness of these two men? If so, it was not without reason, for it emerges from some notarial instruments dating from 1698 that Jacob Athias was hiding from his creditors at that time. He had problems making payments and was trying to avoid being bled white by the people he still owed money.13 The second factor that determined the magnitude of the margin, which was even more important, was the volatility of the VOC share price—in other words, how much it was fluctuating. If the price was unstable, there was a bigger chance that it could drop sharply during the term of the secured loan contract. During such periods, lenders were more cautious and extended less generous loans on VOC shares. We know from some surviving sets of private accounts roughly what the margins were on secured loans during the second half of the seventeenth century. Elisabeth Coymans, the widow of the affluent merchant Jan Deutz and herself a member of the immensely 177

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rich Coymans family, was actively involved in the pledged loan market from the end of the 1640s until her death in 1653. We do not know whether she ever went to the exchange herself. Brokers must have been aware that she was extremely wealthy and was prepared to invest in loans secured by collateral. They probably put borrowers in contact with Coymans and handled the transaction on her behalf. Coymans often lent almost the entire market value of the share and never less than 90 percent.14 This made sense. The share price had remained at a very high level since the substantial increase between the mid-1630s and the middle of the 1640s. In 1648, the year peace was made with Spain and the VOC’s future looked more than bright, it passed 500 for the first time. In other words, there was no reason to assume that the share price would suddenly collapse. The situation was very different later in the century, when a number of major events caused huge moves in the share price. To begin with there were the first Naval Wars with England in 1652–1654 and 1665–1667. Not long afterward, during the “disaster year” of 1672, the Republic was at war with France, England, Cologne, and Münster, and the aftermath dragged on for years. Then, in 1688, Stadholder William III invaded England at the head of a large army. Lenders consequently required much greater security on loans on shares and only lent between 60 and 90 percent of the pledge’s market value.15 In periods of major price movements, dealers who took out a loan on a share in order to pay for it had to pay more out of their own pockets. To this day, loans on securities have been a popular investment instrument. Nowadays they are known as repurchase agreements, or repos. History has taught us that repos are a good way of hiding things. The American investment bank Lehman Brothers, which failed in 2008, had disguised its financial situation by using what were called Repo 105 transactions. And the seventeenthcentury Dutch share dealers camouflaged a loan on a share as a sale transaction—in which it was agreed at the outset that in due 178

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course the share would be repurchased—so as to circumvent the share trading legislation, specifically a rule about loans on shares introduced at the same time as the reissue of the edict prohibiting naked short selling in 1623. The edict specified that “owners who incur debts on their shares or offer them as pledges” had to have these shares “recorded in a calendar account, in which these shares will be tied to those who have lent money on them.”16 The VOC had initiated these accounts in view of the obligation to register all forward transactions first promulgated in the edict of February 1610. A share that was sold forward had to be transferred to such a calendar account during the term, after which it would be placed—on the end date of the transaction—on the “normal” capital account of the share’s purchaser. This was how forward deals were distinguished from spot trades in the capital accounting. Although a few calendar accounts are to be found in the Amsterdam chamber’s capital accounting, their number bears no resemblance to the volume of forward transactions that took place there. As had been the case with the ban on naked short selling, share traders took little notice of this rule. The calendar accounts were not used for loans on shares either. Instead, the dealers always wrote the shares they had pledged for loans on the lender’s cash account. The loans secured by collateral can therefore not be identified as such in the VOC’s capital accounts; the transfers of shares used as security look just like normal share transfers. Why were traders so keen to arrange loans on shares in their own way? It was because lenders wanted as little fuss as possible if a dealer defaulted. The loan that Abraham Salvador took out on a share from the lender Bernardinus Moens demonstrates exactly what this was all about. On August 1, 1671, Salvador gave Moens a share with a nominal value of 3,000 guilders as collateral. The share was transferred to Moens’s account by the bookkeeper in East India House, and Salvador received a loan of 14,800 guilders. The term of the loan was six months, and the interest rate 179

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was 3 percent. Or, to put it in repo terms, Moens “bought” the share for 14,800 guilders, and they agreed that Salvador would “repurchase” the share six months later for 15,540 guilders, which equated to the loan plus the interest that Salvador would owe Moens. On August 1, 1671, the VOC share price was about 550 (the highest figure of the entire seventeenth century had been reached a few weeks earlier), which meant that Salvador received a loan of nearly 90 percent of the market value. So far, so good. But not long afterward the first news about troop movements in France reached the share traders in Amsterdam. People feared that Louis XIV was preparing for war with the Republic. The share price responded sharply, and at the beginning of February, when Salvador’s loan fell due, it had already dropped to 420. Officially the Republic was not yet at war—it would be more than another month before the first country, England, declared war on the Dutch—but the threat was enough to cause the price to fall by nearly a quarter. This was a major problem for Salvador. His pledge, which had been put on Moens’s account, was now only worth some 12,600 guilders. That was not enough to repay the principal of the loan to Moens. There was a shortfall of 2,940 guilders. Salvador might perhaps have been able to pay back his debt to Moens, but this was not the only secured loan he had taken out. He still had to pay off a 30,000-guilder loan from Jan Loten, which he had obtained by pledging a share with a nominal value of 6,000 guilders. Finally, Govert and Jacob Wuijtiers wanted to be repaid for their loan of 15,000 guilders, for which they had received a 3,000-guilder share as collateral. At the new share price Salvador was not able to fulfill his commitments, and he defaulted. The lenders dispatched the notary Adriaen Lock to serve writs on him, simply advising him of what they were going to do. Salvador was given one more chance to repay the money. If he did not come up with it, they would sell the collateral on the market “without any prior recourse to law.”17 180

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If Moens and the other lenders had done everything by the book, the shares that they had received as security would still have been in Salvador’s calendar account in mid-February. In that case Moens would not have been able to sell the share without further ado. He would have had to submit a request to the city council first. A city official would then have checked the VOC’s books to verify that the lender did indeed have a claim to the share. Only after that could the official give permission, at which point the lender could go to East India House in person to have the share transferred to his account. Moens would not have been able to sell the share until that had been done. All this took a good deal of time. If Moens had been obliged to go through all these steps, he might not have been able to sell the share until the summer of 1672, when the price was below 300. Lenders thought that the official procedure for secured loans was simply far too laborious. They were happy to facilitate repos, but only if it was very easy to realize the value of the pledge in the event of nonpayment so that they could limit their losses. The use of repos sounds very modern, but it was primarily the private dealing in the clubs that gave the Amsterdam share market a modern character. Share traders in a smoky tavern in Kalverstraat may not conjure up visions of the current world of stock exchanges and their dozens of computer screens displaying price data and graphs, but their exclusivity and the presence of professional dealers meant that the clubs had much in common with modern share trading organizations. These days, too, the traffic in stocks and shares takes place in a closed ring of professional traders. As an individual, you cannot walk into a stock exchange and start doing business. All orders are processed through brokers who have been accredited by the management of the stock exchange concerned. Despite the benefit of private dealing, it would take centuries before all the share trading activity in Amsterdam moved to a closed environment. Throughout the seventeenth and eighteenth 181

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figure 9.1 The courtyard of Hendrick de Keyser’s stock exchange, seen from the arcade. Source: Job Adriaensz Berckheyde, The Courtyard of the Stock Exchange, Collection of the Capital Amsterdam Foundation, Amsterdam.

centuries it remained possible to buy and sell shares in the Hendrick de Keyser Exchange, which was open to the public, and merchants also continued to come to Dam Square. Even later, during the era of the Zocher Stock Exchange (opened in 1845), it was still possible for anyone to go on to the trading floor. Since the end of the nineteenth century, only members of the Amsterdam Stock Exchange Association (founded in 1876) have been permitted to buy and sell shares. Starting in 1903 they did deals in a private room in the Berlage Stock Exchange. Finally, in 1913 and ten years after the Berlage Stock Exchange opened its doors, the share trade moved to its own building—one right 182

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next door, designed by Jos Cuypers and known as Beursplein 5. Initially there was also a small area accessible to the public that could be reached by a walkway from the Berlage Stock Exchange. To get on to the trading floor, though, dealers had to go through a gate, where their accreditation by the Amsterdam Stock Exchange Association was verified. The trading floor at Beursplein 5 has not been used since 2002. Trading has moved in its entirety to an electronic environment, but there too access to the system is restricted to a select group of brokers.

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10

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the back room in De Plaetse Royael tavern was stuffy and full of smoke. Even on a hot summer evening like this one, August 8, 1678, many members of the Collegie van de Actionisten trading club went there to buy and sell shares. That evening Hubertus Beens was there. He had received instructions from Hubertus Pollius to sell shares. As he entered the airless room he encountered Mozes Machado. They began discussing the share trade, and the conversation soon turned to the war with France. Nearly five years had passed since the last French troops had been driven out of the Republic’s territory, but the war was still exercising people’s minds. The troops were still active very close to the Republic. In March, for instance, they had taken the Flemish cities of Ghent and Ypres, so France still represented a considerable threat. Beens and Machado were not talking about the latest feats of French arms, though, but about the peace negotiations being conducted at that moment in Nijmegen. Beens had heard other businessmen talking about these negotiations on the exchange, and the 184

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Amsterdamsche Courant had reported them. But there was only a tiny trickle of news in Amsterdam. Needless to say the discussions in Nijmegen were secret. Beens knew Machado and suspected that he might know more about the situation. This was good thinking. Mozes Machado, who called himself Antonio Alvares Machado when dealing with Christians, was a Portuguese Jew with extremely good connections in the Republic’s army and with Stadholder William III. He owed this position to his competence as a supplier to the army. From the beginning of the war in 1672, Machado had seen to it that fresh bread was baked and that beer was on tap. He also made sure that everything reached the soldiers who were fighting in the country’s armies. He advanced the funds needed for this to the government. Machado made a lot of money on the services he provided to the Republic. The magnificent country house Vechtoever in Maarssen—built for Machado—stands as visible proof to this day. He also profited from his position in an intangible sense; he became a confidant of Stadholder William III.1 Beens tried to get some information out of Machado. The confidence of his response was unexpected. “It’s only matter of days before there’s peace, and there’s no possible outcome other than a substantial increase in the VOC share price when the news gets out.” His bravado did not stop there. He proposed a special forward deal to Beens. “If a peace treaty is signed within a month, I’ll buy a 3,000-guilder share from you at a price of 405 percent. And if peace has not been made by September 8, we’ll tear up the contract, and there will be no deal.” It sounded like a good proposal, but because it came from Machado, Beens had his doubts. Machado, after all, was someone with exceptionally good connections. He was probably always the first to hear political and military news because of his position so close to the stadholder and the army. Beens knew this, and he also knew that striking a bargain with somebody who has better information is all too likely to result in a loss. 185

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On the other hand, though, Machado’s offer seemed very attractive indeed. His proposal for this transaction was an indication that he expected the price to rise sharply. On August 8 the share price was 396, whereas Machado was offering 405. This was an offer that was almost impossible to refuse. But it was so good that it only made Beens more hesitant. Was Machado expecting the price to rise even further if a peace treaty was actually signed? Would it not be better for him to hang on to the share so that he could profit from any increase in the value? At that point Beens remembered that he had received a specific assignment from Pollius—he had to sell. That made it easier for him to decide. If he accepted Machado’s proposal now and peace was made within a month, Pollius would receive more money than if he entered into a transaction at today’s rate. If, on the other hand, the negotiations in Nijmegen got nowhere, Beens would run the risk that the price might slump. In that case, after all, the contract with Machado would be cancelled. Beens decided to take the risk. Beens and Machado clinched their deal and left the tavern. The negotiations in Nijmegen were subsequently very successful, so much so, in fact, that France and the Republic signed a peace treaty as early as August 10, two days after Beens and Machado had made their bargain in the Collegie. News of peace reached Amsterdam on August 12. As soon as Beens heard what had happened, he went to Machado to settle the contract. But then something unexpected happened. Machado refused to accept the share. He maintained they had agreed that the transaction would only go ahead if a “general peace” was made, whereas the peace treaty of August 10 only related to France and the Republic. The other countries that were taking part in the negotiations—Sweden, Spain, and a number of German states— had not yet reached an accord. Machado wriggled out of the deal by insisting that it would only go ahead if all these countries concluded peace before September 8. 186

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It took longer than that for the other countries to make peace, though, and Beens decided to let things stand. He had almost forgotten about the contract when Machado spoke to him on the exchange at the end of September. Machado reminded Beens of the contract and explained that he wanted the share to be delivered. Beens understood only too well why Machado had suddenly changed his mind. Shortly before their discussion the price had risen above 405, and consequently the agreement would now give Machado a profit. Beens responded angrily that Machado had had his chance and that he should not approach him now, when all of a sudden there was a chance to make money on the deal. Beens stood his ground, even when Machado threatened to go to court. This dispute did not end until three years later, after both the aldermen’s court and the Supreme Court of Holland had dismissed Machado’s claim.2

The Price of Risk The agreement between Beens and Machado was an example of a forward contract with what is now called a contingent claim. This is a claim that only comes into effect if a particular event, specified beforehand, takes place—in this case the signing of a peace treaty. When added to a contract, this type of claim enabled dealers to divide the risks associated with trading in VOC shares very precisely between themselves. The contract between Machado and Beens revolved around the risk of prices changing depending on whether or not a peace treaty was signed. If it was not, Machado ran no risk at all. Beens would be stuck with his share and would lose out if the share price dropped, because if the peace negotiations failed the agreement would be void. If peace was made, however, Beens—or in fact his client Pollius—would get a fixed price of 405. Any fluctuations in the share price would not affect the return. Machado, on 187

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the other hand, bore all the risk of price changes resulting from a peace treaty being signed. This could turn out to be advantageous or exactly the opposite. The price at the beginning of August was based on the expectation that a peace agreement would be reached. Once this had happened, the price could rise further if the terms were very favorable for the Republic, but shares could just as easily drop in value if the conditions associated with peace were disappointing. Beens was prepared to sacrifice the chance of a big return in exchange for the certainty of getting 405 if peace was made. Contracts with contingent claims were used more often in periods of great uncertainty about share price movements. They could result from differences in the parties’ estimates of the future share price and the associated risk. The advantage of this type of contract was that a dealer could decide with great accuracy which risk he was prepared to bear and which not. A drawback, though, was that protracted negotiations about the terms were always needed. And ultimately the contract had to be written so that subsequently there could be no ambiguity. The “general peace,” which in Antonio Alvares Machado’s opinion was not the same as the truce with France signed on August 10, 1678, is an example of how things could go wrong. There was also an easier way to cope with the risks involved in trading—through options. A trader with a forward contract is obliged to receive or deliver a share on the completion date or to settle the contract in some other way, whereas the holder of an option is entitled not to do so. He can choose to exercise the option—in other words to deliver or receive the share—but he can also let the option expire. This decision is never difficult. A trader only exercises an option if it makes money. An option also differs from a forward contract in that the buyer pays the seller—called a “writer” in an option deal—a premium for the right he receives. Essentially, an option is like an insurance policy. You pay a premium to cover a particular risk. An option 188

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to be able to sell a share in the future at a certain price, nowadays known as a put option, assures the buyer of the option that he can sell the share on that date for the prearranged price. This means he has insurance against interim price decreases. The option writer receives the premium, and in exchange bears the risk of price drops during the term of the option. On October 22, 1671, for example, Manuel Mendes Flores bought a put option from Josep Francees, paying a premium of 585 guilders. This option entitled Mendes Flores to sell a share with a nominal value of 3,000 guilders to Francees on August 1, 1672, at a price of 500. The option entitled him to sell the share on the agreed date at that price, but he was not obliged to do anything. If the price on August 1, 1672, was greater than 500, Mendes Flores would let his option lapse because the option would then be “out of the money,” in the current jargon. In such a case it would be better to sell the share at the market price. In fact, on the exercise date this option was substantially “in the money.” On August 1 the price was about 340, so Mendes Flores was pleased that his option enabled him to sell for 500. After deducting the option premium, his profit on this deal was 4,215 guilders.3 This example shows how options gave businessmen the opportunity to put a price on and deal in certain risks associated with trading in shares. In the example of the transaction between Francees and Mendes Flores, for 585 guilders Francees was prepared to bear the risk that the VOC share price would fall below 500. Mendes Flores, on the other hand, wanted to cover this risk and was evidently prepared to pay 585 guilders to do so. This makes it clear that every option was based on an assessment of money and risk. In each case the options trader had to ask himself how much it was worth to cover a particular risk. The degree to which businessmen were prepared to take a risk played an important part here. Dealers probably set the size of the option premiums largely on the basis of their gut feeling. The option pricing 189

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models that are used nowadays as a guideline for the valuation of an option are based on statistical methods that were unknown in the seventeenth century. In fact it was not until 1973 that Fischer Black and Merton Scholes developed an effective model—the Black-Scholes model. But there was something else that played a part in the bargain between Manuel Mendes Flores and Josep Francees. It would seem that Francees saw writing (selling) options primarily as a way to make money quickly. As well as the put option with Mendes Flores, in October and November 1671 Francees also wrote two options now known as straddles. Seventeenth-century traders did not have a name for this type of transaction, but they dealt in them nonetheless. A straddle is a type of option that combines the right to sell at a certain price (put) with the right to buy (call) on a particular date. Options dealers bought this complicated instrument if they expected the share price to make a significant movement but were not sure whether it would be upward or downward. From a rational point of view Francees, as the writer of these straddles, must have expected the price to remain more or less the same during the term of the contracts, but it would seem that he found the premiums he received more important. And those premiums were not to be sneezed at. On October 26, 1671, Raphael Duarte paid 1,200 guilders into Francees’s account at the Bank of Amsterdam as an option premium for a straddle. A month later Jacob and Mozes Nunes Henriques paid him even more—1,500 guilders for another straddle. Altogether, Francees received a total of 3,285 guilders for writing three options in the space of a month. All he had to do for this was to sign three documents. It was easy money, and Francees did not have to worry for months about the risks he had agreed to bear. But the problems caught up with him in the end. When the exercise date of the options—August 1, 1672—dawned, it emerged that his overall loss on the three contracts amounted to 11,115 guilders. 190

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It seems highly unlikely that Francees could sustain this loss. His counterparties probably suspected he might renege, because on August 1 they immediately sent the notary Adriaen Lock to see him with writs reminding him of his obligations. Francees was at home when Lock knocked on his door. He responded to all three writs with the meaningless “I hear and see.” After that nothing more is heard of Francees on the share market.4

Willingness to Take Risks Grain merchants from the Low Countries were using option contracts as long ago as the 1550s and 1560s in order to cover themselves against disappointing harvests.5 The earliest known option in the share trade came approximately a century later. This option, agreed to in January 1660, shows up in the accounts of Louis Trip—an arms dealer who with his brother Hendrick had the famous Trippenhuis built on Kloveniersburgwal in Amsterdam, nearly opposite the VOC’s Bushuis. It is currently home to the Royal Netherlands Academy of Arts and Sciences.6 Of course options could have been traded before this, but they left no traces in the archives. The commission that brokers received for their activities was not set for the first time until 1689, so it seems reasonable to assume that options trading did not really get going until the second half of the seventeenth century.7 That was relatively late. By then, dealing in forward contracts and repos had been generally accepted for decades. The primary reason for the relatively late development of trading in options was their complexity. By comparison, forward contracts and repos were simple instruments. These derivatives could be used to invest in VOC shares without having to pay the full market value of the share. The use of options was about something else—risks and the premium that a trader was prepared to pay to cover them. Contrary to the suggestion in Confusión de confusiones, in which the 191

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shareholder advised the other two characters to begin by trying options, inexperienced dealers did not dare stick their necks out. By about 1650, though, there were enough traders with sufficient experience to use this complicated instrument. They were the very active dealers—mostly speculators, whose ranks included many Portuguese Jews. These businessmen were to be found very regularly at the exchange and in the Collegie. They knew exactly how the business worked, monitored the VOC share price closely, and were consequently in a very good position to make an assessment of whether trading an option was worthwhile or not. The speculators’ risk profile was different from that of the shareholders who were more interested in investing in Company shares for the long term. This latter group endeavored not to take too great a risk. What they wanted was an annual dividend from the VOC, so major price swings were undesirable because they could affect the value of their portfolio. The speculators, on the other hand, tried to make money out of the fluctuations in the VOC share price. These different attitudes to taking risks were exactly what the trade in options needed. What every option contract required, after all, was a difference in the outlooks of the two parties concerned about the risks. One party wanted to cover a particular risk and had to find a dealer who was prepared to bear that risk. In the early seventeenth century, there was quite simply little or no opportunity for options trading on the VOC share market because all the share dealers had more or less the same investment objective and were also prepared to take approximately the same level of risk. How did the trade in risks work out in practice? Fortunately one of the share dealers who was active on the seventeenth-century market kept such meticulous accounts that it is possible to work out exactly how he used options. Joseph Deutz inherited a huge fortune from his parents, the merchant Jan Deutz and his wife Elisabeth Coymans, whom we have already met. He was able to increase his wealth substantially through the import of pitch and 192

figure 10.1 Joseph Deutz at around twenty-five years of age. Source: Michael Sweerts, Portrait of Joseph Deutz, 1648/1649. Rijksmuseum, Amsterdam.

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tar from Sweden and, later on, thanks to his activities as a banker. His estimated wealth of 89,000 guilders put him at number 101 in the recently compiled list of the 250 richest Dutch people during the Golden Age.8 He commissioned the building of one of the most magnificent houses in the Golden Bend of Herengracht. This was the most expensive section of Herengracht and hence also the costliest part of Amsterdam’s ring of canals. His double-fronted canal-side house, designed by Philips Vingboons, is at number 450. Until recently it was home to the Dutch branch of Deutsche Bank. In addition to his house, Deutz also owned government bonds, an impressive collection of paintings (with works by Rembrandt among others), even more property (he rented out houses on Prinsengracht), and substantial share capital in the Dutch East India Company. Deutz made a note of all the options that he bought and wrote, and he always recorded the strike price and date, as well as the premium that he had paid or received. He also made a distinction in his ledger between the shares that he owned and the shares that had been put on his account temporarily because they were collateral for a repo. This combination of data makes it possible to work out why he traded options. On March 12, 1675, for example, Deutz bought five call options—options that entitled him to buy a share—each with an underlying value of a 3,000-guilder VOC share. His counterparties were all Portuguese Jews, three of whom figured earlier in our story. They were Rodrigo Dias Henriques, Manuel Mendes Flores, Antonio Rodrigues, Samuel de Elisa Abrabanel, and Joseph Gonsalves de Assevedo. The exercise price of the options was 450, and the due date was May 1, 1675, which meant that thanks to these options Deutz had the right to buy five VOC shares, each with a nominal value of 3,000 guilders, at a price of 450 on May 1, 1675. Deutz paid out a total of 870 guilders in option premiums. Three contracts cost him 180 guilders each, and the other two were slightly cheaper, 194

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at 165 guilders.9 If the price on May 1 was lower, he would let his options expire and he would lose the sum that he had spent on premiums. He would exercise his options if VOC shares were being traded on that date for more than 450. If the price was high enough, he would more than recover the premiums he had paid and make a profit. Why did Deutz buy these options? On March 12 the VOC share price was standing at 447, and on that date Deutz had a nominal position in the VOC of 36,000 guilders. His purchase of five call options indicated that he was speculating on a price increase. Through these transactions he was not buying insurance to cover the price risk in regard to his position in the VOC but the right to expand his position. The motives of his counterparties will never be known with certainty, but we can be sure that they were speculating that the price would not go above 450 so that they could pocket the option premium as profit. Deutz did not always use options in this speculative way. In times when he was uncertain about the price movement, he traded in options in order to prevent major fluctuations in the value of his share portfolio. For example, on May 4, 1678, he wrote a call option with an exercise price of 340 and a due date of August 1, 1678. As usual, the underlying value was a VOC share with a nominal value of 3,000 guilders. The purchaser of this option, Guilliam Venturyn, paid Deutz a premium of 360 guilders. During the preceding years Deutz had sold quite a few shares because his position in the VOC was now only 8,090 guilders, though at the share price at that time, 319, his position was still worth a tidy sum—25,807 guilders. What Deutz had done would now be called a covered call. He had a positive position in VOC shares and he wrote a call option with a strike price that was significantly higher than the going price. In so doing Deutz had insured his portfolio against shortterm fluctuations. If the price fell during the period to August 1, 1678, Deutz would not immediately incur a loss because he had received an option premium of 360 guilders, and this would 195

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cover his portfolio’s loss in value if the share price fell slightly. If the price rose during that same time span but did not exceed the strike price, Deutz would make a profit. His share portfolio was worth more, and Venturyn would not exercise his option. If the share price were to climb above the option’s strike price, Deutz’s profit would flatten off. The shares he owned were worth more, but he would have to sell a 3,000-guilder share to Venturyn at a price of 340. The implications of share price fluctuations were cushioned in this way.

Gambling with Leverage As the last example of Joseph Deutz’s dealings shows, seventeenthcentury share traders could cover risks by making clever use of derivatives, but in fact the principal reason why dealers bought and sold them was to take even greater risks. They were interested above all in the leverage they could bring about through their trading in derivatives. Leverage means that a trader increases his risk without having to invest more of his own money. All the derivatives that were available in seventeenth-century Amsterdam— options, forward contracts, and repos—could be used for this. We saw in Joseph Deutz’s case how this was done with options. In March 1675 he had a position of 36,000 guilders in the VOC and wanted to enlarge it. He bought five call options in order to do so. This enabled him to profit from price rises on the basis of a total nominal position of 51,000 guilders. The advantage of using options was that during the term of the transactions Deutz was “only” running the risk of a price drop on his position of 36,000 guilders. Forward contracts were also an excellent way to increase the leverage of an investment portfolio. A dealer could use a simple contract to conclude an agreement to buy a share forward and in so doing increase his position on the forward market. There was no immediate requirement to spend any of his own money, because 196

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that was not due until he settled up with the counterparty on the completion date. In principle a trader could buy as many forward contracts as he wanted. With every additional contract, his investment portfolio became more exposed to share price risk. In other words he continued to increase the leverage. Unlike options, in the case of forward contracts the share price risk worked both ways. If the price went up, the purchaser of a forward contract made a profit, and he lost money if it dropped. The accumulation of contracts represented a further risk for the dealers’ counterparties—the chance that the traders would renege on their obligations. This was because if the price fell, the losses of a dealer who had bought a number of forward contracts mounted rapidly. The probability that a dealer would no longer be able to fulfill his commitments increased with the leverage. It was the same story for traders who wrote a number of options in a short space of time. If a substantial price movement resulted in all those options being significantly in the money on the due date, the options’ writer took a huge loss. And the more options he had written, the greater the chance that he would not be able to come up with the money. Brokers tried to monitor how much risk active dealers were taking on the options and forward market. If they noticed that an individual was really sticking his neck out, they became wary of negotiating new contracts with him on behalf of their clients. Brokers were not able, though, to prevent a trader from increasing his leverage still further or writing even more options after a contract had been signed. The private trading in the Collegie and other clubs of share traders offered a partial solution to this problem. The members of the Collegie had a very clear picture of the risks that other members were taking, and, more importantly, the web of mutual commitments ensured that dealers thought twice before they defaulted. But by no means all share traders in seventeenth-century Amsterdam were members of the Collegie. How did those who were not manage the risk that their counterparty would welsh on them? 197

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This was a thorny issue for which no ready solution could be found. The dealers could have dramatically reduced this type of risk had they made agreements with their counterparties about what to do if there were major price movements during the term of the option or forward contract. There are forward contracts dating from the eighteenth century, for instance, that included a provision under which the parties made an interim payment if a price change of more than 10 percent occurred.10 A provision like this obliged the traders to take action as soon as a contract looked as though it was going to land them with a significant loss. These days the futures business still employs this principle, albeit in a somewhat different form. Currently, futures contracts are seldom traded directly between dealers but rather with a central counterparty. This can be the stock exchange management or, as is the case in Amsterdam, a separate clearing agency. All transactions go through this agency. The vendor of a futures contract sells it to the central agency, which sells it on to the purchaser. All traders are required to keep a margin account with this central agency. At the end of every trading day, they have to deposit into this account the loss they have made on their contracts that day. Conversely, if a profit has been made on the contracts, less money needs to be in the margin account. In this way it is possible to monitor on a daily basis whether dealers are still able to meet their commitments, so that quick action can be taken should that no longer be the case. At the same time this system prevents a trader from being confronted all at once with a substantial loss at the end of the transaction’s term, which reduces the chance of defaulting. If, despite all this, a trader is no longer able to fulfill his obligations, the loss is taken by the central agency and then divided among all dealers. This lessens the probability that reneging by one dealer also puts others in difficulties. Seventeenth-century businessmen never used margin accounts. It is possible that the notion that this would be a way of reducing the risk of someone’s no longer being able to meet his commitments 198

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never occurred to them. But on the other hand it could also have been that they did not know how they should organize it. Brokers would have been the obvious people to collect and pay out the margins because they were closely involved in the dealing but were not themselves parties to the transactions, but the brokers never took on this task. Another possible explanation is that the forward traders were not interested because of all the red tape that margin payments would inevitably entail. Trading forward was wholly geared to enabling deals to be done with as few official procedures as possible, so it is highly likely that the traders were not keen on a system of margin payments because it would mean more work. Whatever the case may be, payment or offsetting always took place on the contract’s expiry date, when it could emerge that a dealer’s losses had mounted up considerably. Every forward deal consequently carried a risk that a party might go back on it. Repos represented an alternative for traders who could not find a counterparty prepared to enter into a forward bargain because of this risk. This instrument also gave a dealer a way of taking a position in the VOC without having to come up with the money for the full market value of a share, and the collateral meant that the risk for the counterparty was limited. During the second half of the seventeenth century the financing of repos became a popular investment for wealthy Amsterdam residents. There was a lot of money around in the city, but the number of investment options with a relatively low risk was limited. Bonds issued by the States of Holland—the province’s government debt, so to speak—generated a modest return at a low risk but were only available to a limited extent. Repos were an attractive alternative because, with a carefully chosen haircut, the risk for the lender was small. The appeal of repos also lay in the fact that there was a liquid market for the pledge—in other words, VOC shares were easy to trade. So, if a debtor welshed, lenders had little difficulty converting the shares they had received as collateral into cash. 199

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People with money to lend tried to make repos competitive with forward contracts in order to get more traders to choose them. The interest on repos consequently had to be low because only then could they compete with the modest costs of forward deals. As a result they always asked for less than 4 percent interest on loans secured with VOC shares. By way of comparison the States of Holland, which in those days was just about the most creditworthy government in the world, paid 4 percent on one-year debt. The low interest rate also meant that traders who could find a counterparty for a forward contract without difficulty also began to consider repos. Jeronimus Velters was one such. He was a wealthy man and was held in high esteem in Amsterdam. He was not someone who would back out of a forward contract, so he never had problems if he wanted to strike a bargain. Nevertheless, before he purchased a forward contract in October 1676, he considered whether it might not be better to enter into a repo. In the end he concluded that the forward contract was a better deal, explaining why in a letter to Pierre Macaré, his business partner in Middelburg. “It’s more advantageous than paying 4 percent or even 3.5 percent on a secured loan, because you also have to provide a big surplus yourself seeing that they [the lenders] never want to give more than 11,000 guilders on a 3,000-guilder share.”11 Apparently the haircut that the lenders applied made a forward contract cheaper for Velters, but how much difference did it make? Velters bought a contract with an underlying value of a share with a nominal value of 6,000 guilders at a forward price that was two points higher than the going share price. So this contract cost him 120 guilders (2 percent of 6,000 guilders). If Velters had plumped for the repo, he would have obtained a 22,000-guilder loan on a share with a nominal value of 6,000 guilders. For just over a month, which was the term of his forward contract, he would have had to pay 3.5 percent interest, amounting to just under 83 guilders. So far the repo was cheaper, but Velters would have had to do more because the 22,000-guilder 200

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loan was not enough to pay for the share. The market price of a 6,000-guilder share at that time was 27,240 guilders, so there was a shortfall of 5,240 guilders. It would have been necessary for him to get that amount somewhere else. Provided that he paid an interest rate below 6.67 percent on the loan to finance the haircut, the repo would have cost less than the 120 guilders he paid for the forward contract. Obviously higher interest was demanded for an unsecured loan than for one with collateral, so it would not have been too easy to borrow 5,240 guilders at this rate. But Velters was not just anyone—he was an important merchant with a good reputation—so it must have been possible for him to get this loan at an interest rate below 6.67 percent. The fact that he nevertheless opted for a forward contract indicates that the additional costs associated with a repo—the share had to be transferred twice in East India House and various payments also had to be organized—made it a less attractive type of transaction. The share traders in seventeenth-century Amsterdam knew that the game they were playing was a risky one. It was no accident that the speculators shifted their highest risk deals to trading clubs, where the basis of trust was more robust than on the exchange and in Dam Square. It was similarly no coincidence that traders who were known to take big risks sometimes had trouble finding a counterparty for a forward deal and had to settle for a repo instead. At times, though, the temptations of the share trade were great, irresistible even, and people threw caution to the wind. Take 1671, for instance. The VOC paid out a record dividend, and the share price was higher than ever before. Sentiment on the exchange had never been more positive. Everyone wanted to jump on the bandwagon. Many traders did one high-risk deal after another, constantly increasing the leverage in their investment portfolios. Needless to say, this could not go on forever. And it did not.

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11

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the spring and summer of 1672 was the busiest period that the notary Adriaen Lock could remember. While the Republic was being attacked on all sides, Lock—always accompanied by two witnesses—walked from the house of one share trader to another. He knocked on each door, and when it was opened he read out a notarial writ. He had to visit four share traders on May 18. Fortunately they lived close together, in the Jewish quarter. The first three men the notary visited were not at home, so he read the writs to Miguel Rodrigues Nunes’s daughter, Juan Mendes de Castro’s mother, and Isaac Gomes Silvera’s wife. They all promised to pass on the message. The fourth businessman Lock visited that day, Jacob Lopes de Castro Gago, also known as Antonio Lopes de Castro Gago, was at home. Lopes de Castro Gago was not surprised when he saw the notary. He was expecting the visit and listened calmly while the writ was read. Yes, he had indeed purchased a forward contract on January 6 of that year from Raphael Duarte with 202

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figure 11.1 The Courtyard of the Hendrick de Keyser Exchange. Source: Collection of the Capital Amsterdam Foundation, Amsterdam.

a 3,000-guilder Dutch East India Company (VOC) share as the underlying value. And yes, he had undertaken to buy the share on May 6 at a price of 4852⁄3. The fact that he was still in default was not news to him. The notary had almost reached the end of the writ. He declared that Duarte was prepared to deliver the share and requested Lopes de Castro Gago to be ready to receive it. Finally Lock asked Lopes de Castro Gago to give his response. The latter proved ready to have his say. He simply answered, “I would like to refer to the rulings of the aldermen and the Supreme Court of Holland about naked short selling.”1 The following day, May 19, Lock had to visit only one share dealer. By coincidence it was Lopes de Castro Gago again. This time the writ had been issued by Manuel Mendes Flores. What the notary read out was almost identical to the writ he had read 203

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the previous day. The only differences were two details about the contract. This time it was a contract entered into on January 7, and the forward price was 487. As he had done the day before, Lopes de Castro Gago had the last word. This time he gave a more pointed response to the same message. “The individual who issued this writ sold me something he didn’t have, and so I wish to abide by the edicts promulgated by the ‘Lords of the States.’”2

1672: The “Disaster Year” Jacob Lopes de Castro Gago did not mince his words. Raphael Duarte and Manuel Mendes Flores had sold him something they did not own; in other words, they had engaged in naked short selling. But, then again, naked short sales as such were nothing special. What was unusual, though, was Lopes de Castro Gago’s public reference to the edicts that prohibited this practice. We saw this earlier when Sebastiaen da Cunha took his nine counterparties to court and much further back, in 1633, when Severijn Haeck wanted to get out of his contract with Andries Polster. But what made the spring and summer of 1672 unique was that Lopes de Castro Gago was not the only one. Adriaen Lock, the notary who dealt with the lion’s share of the financial instruments at that time, visited no end of share traders during these months. On his busiest day, August 1, he knocked on the front doors of sixteen dealers. And every time he read out a similar writ. Most of them were less forthright than Lopes de Castro Gago, but they all reneged. What had happened? In the history of the Netherlands, 1672 is known as the Disaster Year. The Republic became embroiled in war with England, France, and the German bishoprics of Cologne and Münster. These developments brought the simmering tensions in the Republic to a head. Dissatisfaction grew in Holland, Zealand, and Friesland, 204

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and power in the cities was seized by the Orangists, adherents of the House of Orange and opponents of the republican regime of Grand Pensionary Johan de Witt. The unrest culminated in the murders of Johan de Witt and his brother, Cornelis, on August 20, 1672. The VOC share price sank like a stone and reached its lowest point—290—on July 20, 1672. The price had not been that low since 1637. This blow came as an even greater shock to share traders than it otherwise might have done because a year before, in 1671, the exchange had been in exultant mood. Things had never been better for the Dutch East India Company. In March 1671, when the price was hovering around the 500 mark, the Lords Seventeen announced a record dividend of 60 percent in cash. In real terms this dividend represented about 12 percent. Added to this, the size of the returning fleet that year was unprecedented. Eleven vessels had returned to the Republic in midJune, and a further nine arrived a month later. When added to the two East Indiamen that docked on August 24 and September 2, the total came to twenty-two.3 With so many merchantmen coming back home, the generous distribution of profits there had been in 1671 might well be repeated the following year, or so thought the traders, and consequently the price rocketed. The first part of the dividend—45 percent in cash—was paid out on June 1, and the remaining 15 percent followed on July 20. On that day the share price went ex-dividend, which means that the dividend was subtracted from it. But despite the deduction of forty-five points, on July 7, 1671, the price reached 566, the highest level of the seventeenth century. If the price rise and dividend are added together, VOC shares had shown a return of an astounding 22 percent between March and the beginning of July 1671. The boom did not last. On October 30, 1671, Jeronimus Velters wrote to Mark Fletcher, reporting that the price had dropped back to 480. “People are worried about war. This afternoon there was even a rumor that Cologne was under siege.” Fear of war 205

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pushed the price down 15 percent and caused “many people on the exchange to hold back,” continued Velters.4 In other words there was virtually no trading. Many dealers wanted the rumors confirmed before they started doing deals again. The fall continued. By mid-November the price had sunk to 448. A month later, though, it had risen again to 493. Velters had been staying in The Hague and Haarlem for a while and did not know precisely why the price had recovered. In his letter to Fletcher all he said was “people are less pessimistic.”5 But the upturn in the price was short lived. Early in 1672 it became clear to everyone that England and France were determined to wage war with the Republic, and by the end of February the price had slumped to 406. It bounced back briefly when William III was appointed commander-in-chief of the army and when news arrived that the English diplomat George Downing—regarded in the Republic as the evil genius of the English war plans—had been imprisoned in the Tower of London for failing to complete his mission in the Republic. But after that the price sank lower and lower. On March 12, England was the first to declare war on the Republic, and the price responded by dropping to 370. France followed suit on April 8, after which the price tumbled further to 311. The lowest point was reached in July, when enemy troops had occupied large parts of the north and east of the Republic and had even taken the towns of Utrecht and Naarden. The nadir— 290—was reached on July 20.6 That was as far as the enemy armies got. King Louis XIV did not press home his advantage, thus giving the Hollanders time to put large tracts of land under water and block access to their province. The French troops could not get across the flooded area, and the Dutch were spared enemy occupation. Although the threat from France had by no means disappeared—the French did not withdraw from Utrecht until November 1673—the VOC share price started to climb again in August 1672. The share traders may have thought that the domestic political turmoil had come to 206

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an end with the deaths of the de Witt brothers and the subsequent appointment of Prince William III as stadholder. It is more likely, though, that the price recovery was sparked off by the news that the British navy had failed to capture the VOC’s returning fleet, and a convoy of fourteen East Indiamen would reach the Republic in August. The plunging price meant huge losses were sustained on the exchange that year. Many dealers were struggling to keep their heads above water. In June 1672, for instance, Balthasar da Cunha, one of the most active traders (not to be confused with Sebastiaen da Cunha), transferred two houses and a share in the VOC’s Enkhuizen chamber with a nominal value of 6,000 guilders to Miguel Netto de Paiva in order to settle a forward bargain.7 The share price slump had evidently been a serious blow to Balthasar da Cunha, but he did everything in his power to avoid defaulting on his forward contracts. There were also dealers, though, who had no houses or shares in the Enkhuizen chamber to fall back on. Many individuals incurred losses on the share market that they could not sustain. Jacob Lopes de Castro Gago, the businessman who featured at the beginning of this chapter, would have lost nearly 10,000 guilders on two forward contracts with Raphael Duarte and Manuel Mendes Flores if he had settled them properly in May 1672. He reneged because he did not have the wherewithal to cover such a loss. Gaspar Mendes de Garvoijs, who was visited by Adriaen Lock on July 1, 1672, said very honestly in his response to the writ that it was impossible for him to fulfill his obligations. In October 1671 Mendes de Garvoijs had entered into a futures contract with a 3,000-guilder share as the underlying value. The forward price he agreed upon with the vendors— Antonio and Miguel Gutieres Martines—was 530. On this one contract he would consequently have lost around 6,900 guilders. He had no alternative, he explained, but to invoke the edicts of the States General.8 207

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Crisis of Confidence By November 1672 the price had climbed back to over 375 again—a rise of almost 30 percent from the lowest point in July. The share transfers in the VOC’s books reveal a normal pattern around this time. Fewer shares changed hands than in the very turbulent period a couple of months before, when the tumbling price and the reports of the approach of hostile armies prompted many transfers, but there was nothing out of the ordinary compared with the number of changes of ownership in earlier years. At first sight it seemed that the share trade had survived the crisis again, but nothing could have been further from the truth. “Don’t buy any more shares for now,” wrote Velters to Fletcher in Middelburg at the end of November 1672. “It’s impossible to sell them here.”9 Velters’s message was clear. Trading in shares had collapsed. Not so much, perhaps, on the spot market, but the forward market was in a bad way. The price drop would have caused no more than a few problems on the forward market if all the traders had entered into only one contract. Had that been the case, the forward vendor would not have made the profit he was entitled to contractually, but on the other hand he would also not suffer an immediate loss if the contract was not fulfilled. After all, forward contracts were entered into by signing a piece of paper. All profit or loss during the term was only hypothetical. If the contracts were not fulfilled, it did not have major financial implications for either of the two parties. All that happened was that the hypothetical profit evaporated. The problem was that traders rarely held only one contract. Many forward dealers tried to keep their portfolio as balanced as possible by having roughly equal positions in forward sales and purchases because this limited the price risk. We saw this earlier with Rodrigo Dias Henriques, who bought a forward contract and shortly afterward sold an identical contract at a slightly 208

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higher price. He made a small profit on these transactions, and, in addition, the second contract brought his net position on the futures market to zero again. Consequently any fluctuations in the share price would not have any effect on the value of his portfolio. Many dealers employed this strategy. And they did what Dias Henriques did—not just once but many times in succession. At the end of each month their portfolios consisted of a whole series of purchased forward contracts on the one hand and a string of sold contracts on the other. If a trader failed to honor his forward bargains, he unbalanced the portfolios of his counterparties. This in turn significantly magnified the chance that these counterparties would encounter financial difficulties and have to go back on their contracts. This is how a few defaulting buyers in 1672 caused an avalanche of unfulfilled contracts. The confidence that underpinned forward trading had been severely dented, and this disrupted the market. Traders were very wary about doing new deals because they did not have a clear picture of other dealers’ debts, and so they had no idea whether potential counterparties would fulfill their side of the bargain. In this respect the crisis of 1672 had a lot in common with the depths of the credit crisis in 2008 and 2009, when banks no longer dared lend money to one another. Trust played a crucial role then, too. Banks stopped giving loans to other banks because they were afraid that in exchange they would be given collateral consisting of packaged debt that included things like uncollectible mortgage arrears. If they had to downgrade this collateral at some later point, the bank would find itself with major problems. The money market dried up as a consequence of this crisis of confidence. Banks needing loans ran into liquidity problems, and in the worst case, as happened to Northern Rock in the United Kingdom and Fortis in Belgium and the Netherlands, they had to be bailed out by their respective governments or they would have failed. What happened to the forward market for VOC shares in 1672 also echoes the collapse of the tulip bulb market in 1637. 209

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The sudden plunge in prices at the height of tulip mania was likewise essentially the upshot of a lack of trust. The disputes between traders after the prices plummeted had far-reaching implications for social relationships. Dealers realized they could not trust one another implicitly, and this led to a social crisis and a situation where merchants no longer wanted to do business. The tulip trade never returned to the scale it had been at before the crisis. Later on, growers would start buying and selling again from time to time, but traders wanted nothing more to do with tulip bulbs. In fact, only a few tulip bulb dealers really ran into financial problems after the prices plummeted. For many years it was claimed that the famous painter, Jan van Goyen, went bankrupt as a result of speculating in tulip bulbs, but in fact speculation in land was his downfall. The crisis that followed tulip mania was more about trust than finances.10 The paralysis of the market for VOC share futures in 1672 was also caused by a crisis of confidence. Unlike the crisis after tulip mania, that on the forward market for shares was only temporary. Just a few years after the Disaster Year, there was a lively trade in futures again. Unlike the bulb dealers, the share traders appeared to have forgotten the implications of the crisis very quickly—primarily because the 1672 crisis was triggered by war. The share price rose as the fighting moved further and further away from Amsterdam, and trust between dealers returned. All the same, there was an essential difference between the two activities. The sellers of forward contracts on the share market were aware when striking the bargain whether or not they could enforce fulfillment of the contract by taking legal action. They knew full well whether the share capital they owned in the VOC’s books covered their forward sales—in other words, they knew whether or not they were guilty of naked short selling. If they sold more shares forward than they owned in the books, they knew they were taking a big risk. If the share price dropped significantly, their counterparties could be tempted to go back on their deals. 210

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The tulip trade had not been aware of this a few decades earlier. The first court cases about bulb transactions happened after the market collapsed. It was only after prices plummeted at the beginning of February 1637 that sellers of tulip bulbs discovered that they could not enforce their agreements by going to court. The traders had signed contracts, and they assumed that the obligations arising out of them would be honored. When they were not, the consequences were particularly bitter. It became clear that the dealers had put their trust in a trading system that was subsequently not upheld by the courts. The traders on the forward market, on the other hand, were aware that they were taking a risk by striking bargains based entirely on trust in the other party. As soon as contracts were not honored, as was the case during the crisis of 1672, they realized they might have underestimated the risk associated with their deals, but they did not lose confidence in the market as a whole. It may be that the forward market for VOC shares actually emerged from the 1672 crisis in a better state than before. Traders had become even more conscious of the risks associated with buying and selling forward, so they were more cautious when entering into contracts with dealers whose trustworthiness they did not know. The VOC’s capital accounts reveal what this meant. After 1672 more repo deals were done than before, which means many traders were no longer eligible for forward contracts and had to resort to secured loans. But was this enough to prevent a new crisis? The share trade did not need to wait long for the next big challenge, because it came in 1688.

Coenraad van Beuningen The crash of 1688—when the VOC share price slumped by over 26 percent from 565 to 414—was caused by concerns about war with England. This crash was smaller and had less severe implications 211

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than the huge price falls in 1672, but for one man the consequences were overwhelming. He was Coenraad van Beuningen, a director of the VOC’s Amsterdam chamber since 1681. Van Beuningen had a long and widely respected career behind him as a diplomat, with missions in France and Sweden. He had also been one of Amsterdam’s burgomasters six times for the usual term of one year. In his capacity as director, van Beuningen had been working on reforms at the VOC since he joined. He was convinced the operation could be run much more efficiently and that the Company’s profitability would increase by leaps and bounds if his plans were implemented. The response of the other Amsterdam directors was unenthusiastic, which made the stubborn van Beuningen even more convinced he was right. He wrote reams of notes and calculations and sent everything directly to the Lords Seventeen, thus bypassing his fellow Amsterdam directors. Van Beuningen could not conceive of any outcome other than the acceptance of his proposals by the Lords Seventeen—and he expected the VOC share price to shoot up immediately after the reforms had been implemented. On April 29, 1688, he anticipated this by purchasing a forward contract for a 6,000-guilder share from Pieter de Lange Adriaens. The following month, on May 24, 1688, he entered into two further such contracts—one with Francois Pardicque for a share with a nominal value of 6,000 guilders and the other with Vincent van Bronckhorst for a 3,000-guilder share. Yet this was still not enough for van Beuningen. On July 19 he bought a forward contract from Abraham Capadoce for a 9,000-guilder share and another one of the same nominal value from Matthijs Bode on August 5. There were no sales at all to balance these transactions. Van Beuningen was taking on more risk with every forward deal he did.11 But this man, despite an impressive career as a diplomat and years of experience as an Amsterdam burgomaster, was blind to the political situation in the Republic, and he simply did not see 212

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figure 11.2 Coenraad van Beuningen in 1673. Source: Caspar Netscher, Portrait of Coenraad van Beuningen, 1673. Amsterdam Museum, Amsterdam.

the price slump that started at the end of August 1688 coming. The cause was not directly related to the Company. It arose from concern among the share traders that the Republic would become embroiled in another war with England. All the same, the crash of 213

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1688 differed from the falls in the price resulting from the three previous wars with England in one important respect. The biggest price movement took place at the end of August, before there was any indication at all of hostilities with England. Why was this?

William III The Dutch stadholder William III successfully invaded England and assumed power in 1688 in what is now known as the Glorious Revolution. Obviously the plan to attack England was not without risk. The country had a strong fleet, and there had been no foreign troops on its soil since the arrival of William the Conqueror in 1066. William III was prepared to take such a risk because of the political situation in England and his close ties with the House of Stewart, which at that time held the crowns of England, Scotland, and Ireland. In 1688 the king of England was James II, a Catholic who did everything he could to expand the king’s power and improve the lot of Catholics in England. This made English Protestants fearful of losing power and influence. They saw an ally in the Protestant William III. This was by no means a foolish notion. The Dutch prince wanted at all costs to prevent a Catholic monarch in England from making an alliance with the Catholic king of France, Louis XIV, to conspire against the Republic, which would mean a repeat of the events of 1672, the Disaster Year. William III was the son of Mary, Princess Royal, who was James II’s sister, and was married to Mary, James II’s daughter. William III could almost be considered a member of House of Stewart—the family of so many British monarchs—and would thus not be without credibility if he were to claim the English throne. Mary Stewart had for many years been James II’s only child, but in 1688 the English king was expecting a new heir—a possible Catholic successor. This worsened the prospects for English 214

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Protestants, so they approached William to ask if he was willing to make an attempt to ascend to the throne of England. The stadholder did not reject the idea. France had just taken steps to hinder trade with the Republic, and the Dutch were worried that this was a precursor of a new war. At that time there was little they could do against France, but if they could prevent England from allying with the French, they would be able to stave off a repeat of the Disaster Year. So William III told the Englishmen who had approached him that he was prepared to hazard an invasion, provided he was invited to do so. The letter of invitation arrived on July 10, shortly after the birth of the English crown prince. By then a few people in Amsterdam already knew about the invasion plans. In mid-June William III had talked to three of the four Amsterdam burgomasters (Johannes Hudde, Nicolaes Witsen, and Cornelis Geelvinck) to find out whether the city would be prepared to support the stadholder in his undertaking. It was very important to know this because without the backing of Amsterdam, the Republic’s richest and most powerful city, the venture would be doomed to failure from the outset. William needed a large, well-equipped fleet, and he had to recruit soldiers. All this cost a great deal of money, and Amsterdam would have to come up with the lion’s share of it. The burgomasters’ response was cautious, but they did not reject the idea out of hand.12 That, for the moment, was enough for William III. When the letter of invitation arrived from England, he started preparing for the invasion at once. This did not immediately lead to unrest on the Amsterdam exchange. On the contrary, the VOC share went ex-dividend in April 1688, which reduced the price from about 565 to 532 (the dividend was 331⁄3 percent), and moved between 530 and 540 during the months thereafter. The situation did not change in July. The burgomasters appear to have kept their information to themselves, and the shareholders had not connected the commissioning of men of war, 215

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which obviously did not go unnoticed, with possible hostilities with England. It goes without saying that people asked the Dutch admiralty, which had command of the Republic’s navy, what the plans were for the warships. They were told that the fleet was designed to protect Dutch merchantmen from North African buccaneers. This was generally believed. As late as the beginning of September, Amsterdam city council still thought that the vessels were to be dispatched to the Mediterranean.13

The Share Price Crisis of 1688 During the afternoon of Saturday, August 21, the mood on the exchange swung round. Jeronimus Velters wrote to Willem Boreel, with whom he was trading shares in this period, to tell him how the share price suddenly dropped to 480. There is no record of price the day before, but on August 13 it was still standing at 547. This represented a fall of almost 12.5 percent in just over a week—a huge drop for such a short period—and there was great consternation among the share traders. Dealers who did not know what had caused the reverse dared not make any new deals without first knowing what was going on. Velters was one of them. In a letter he wrote to Boreel a couple of days later, he explained that he had set off for Nigtevecht, where he owned a country house, earlier in the day on that fateful Saturday when the price suddenly plummeted. As soon as he heard about the sharp fall in the price he rushed back to Amsterdam. That evening he learned from his butler, who had remained in Amsterdam, that “just before the exchange opened today” Jan ten Grootenhuys had instructed four or five brokers to sell as many shares as possible at any price. Ten Grootenhuys was someone to be taken seriously. He was a representative of Amsterdam in the States of Holland. What

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did he know that the others did not? Velters thought the States of Holland might have decided to impose a tax on goods from France. Could this be a harbinger of war with the French? And there was more. It was said that during the meeting the grand pensionary, Gaspar Fagel, had strongly advocated new regulations on share trading. There were concerns among the traders that the rules were intended to curb trading, perhaps through a tax on forward deals. The next day, Sunday, Velters went to Dam Square in person to see how serious the situation was. According to Velters, writing in the same letter to Boreel, things were not so bad. “Simply by pretending I was interested in buying I brought the price back up to 490, and that evening it continued to climb to 500.” It seemed that nobody knew exactly what was happening, and the fall to 480 had primarily been a panic reaction. However, the uneasiness had not abated. On Monday the price dropped to 490 before recovering to 498 at seven o’clock that evening. The next morning a man instructed several individuals to sell shares, causing an immediate fall to 493. This did not hold for long, however; that afternoon the price rose to 505. Then news from France spread like wildfire among the share traders. And it was not good. In France 12,000 infantry and 4,000 cavalry had been seen heading north. They were expected to reach Lille in a couple of days. Meanwhile the French were recruiting even more cavalry units. Velters wrote that in view of all this uncertainty, and because he had no “private tidings” he decided to do nothing. He expected that the perturbations would soon calm down, and he promised Boreel he would handle his affairs “as if they were my own.”14 But the turbulence on the exchange continued for more than a week. Coenraad van Heemskerck, who as pensionary of Amsterdam attended the meetings of the States of Holland, had promised some of the dealers that any new regulations would “not be a

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dreadful blow” to share trading. But this did not reassure everyone, and during the day the price jumped ten points higher and then came back down again. It stood at 486 on August 30. Velters decided to buy a share with a nominal value of 12,000 guilders and an option to sell it to Jacob Poppen at a price of 500 on or before January 1, 1689. (Most of the options traded in seventeenthcentury Amsterdam were what would now be called European options, which can only be exercised on the due date. The option purchased by Velters in this case was an American option, which could be exercised throughout the entire term.) Velters paid a premium of 1,320 guilders for this option. He appears to have expected the price to rise; otherwise he would not have bought a share at that time. On the other hand, he was not completely confident about the deal either, so he bought the option, too. Now he could sell the share at a price of 500 at any time, or at least until January 1, 1689. It was not long before Velters regretted his purchase. He had “come by some information” to the effect that the Bishopric of Cologne had again made an alliance with France. This reprise of the diplomatic moves in 1672 conjured up only bad memories for the Dutch, and the price fell immediately. Velters sold the 12,000-guilder share at 482, leaving him with a loss of 480 guilders within a couple of days. Velters could also have exercised the option with Poppen immediately, but based on the news from France he thought that the price could go even lower. It was better for Velters to exercise the option at the lowest possible price because he would be able to buy a share on the exchange for a low figure and sell it on to Poppen for 500, and so he waited. Velters also came to regret his decision to sell the 12,000-guilder share when “it was announced on the exchange” that a vessel had been omitted when the information about the latest VOC returning fleet had been published. The ship’s cargo was expected to sell

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for a great deal of money, and Velters thought that a substantial dividend could be on its way. This news made the price shoot up immediately to 490. I have to admit that I don’t just regret selling the 12,000-guilder share. I also felt a strong urge to buy again. But I didn’t do so because I was anxious, and it’s just as well I didn’t because since then the price—for reasons I’ve not been able to discover—has dropped in an atmosphere of panic to 463. . . . This has been such a shock to me that I’m barely able to think about what is prudent for me to do. If the price were higher, I would sell now. But I don’t want to do that at the current level. I hope to God I’m doing the right thing.15

The Rumor Mill In just over two weeks the share price had nosedived by over 15 percent, and Velters still did not know what was going on. He might have had his suspicions, but he did not tell Boreel about them. Velters was also none the wiser after receiving information from Theodore Holla, his correspondent in The Hague. “It would have been better if you had told me more about what’s happening,” he wrote on August 28.16 Velters’s information network had let him down again. All he heard about through his contacts in the States of Holland and the city authorities were the plans for regulating share trading. That information was far from irrelevant, of course, but the substantial price fall was caused by news of a much more important event—the planned crossing by William III and his troops to England.17 How was it possible for Velters and his contacts to know nothing about it while there clearly were share traders who had this intelligence?

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The reason was that Stadholder William III had almost completely circumvented the Republic’s political institutions as he organized the preparations for the expedition to England. Only a handful of people knew of the plans. The three Amsterdam burgomasters whom the stadholder had cautiously quizzed about what they thought of the venture knew. Job de Wildt, secretary of the Amsterdam admiralty, who was in charge of fitting out the fleet, has to have known the real objective of the men of war. And, finally, a couple of diplomats, who in the summer were sent to various German states and Sweden to hire troops, also had to be in the loop. The mercenaries these diplomats were required to recruit would be stationed in the Republic to replace the soldiers who were to go with the ships to England. Contrary to all normal practices, William III had not told the States General and the States of Holland anything about it, the diplomats played their cards close to their chest, and the foreign rulers and negotiators were also urged to keep quiet about the purpose of supplying troops so that the prince’s plan would not leak out. Sweden and the German states of Brandenburg, Celle, Brunswick-Wolfenbüttel, Hessen-Kassel, and Württemberg committed themselves to send troops. These states attached great importance to good relations with the Republic, and in any case supplying soldiers was a source of income. As regards paying for the troops, though, there was still a great deal to be arranged. How the soldiers were to be paid during their stay in the Republic was something to worry about later. But the costs the foreign rulers would incur to recruit the men and the maintenance of the soldiers on their journey to the Republic had to be paid as soon as possible. There was only one way to arrange for this in the short term— through Amsterdam bankers. Francisco Lopes Suasso, Jeronimo Nunes da Costa, and Raymond de Smeth were brought in. These were men with an international payment network that enabled them to make substantial payments in foreign countries quickly. But they were also men 220

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with interests in the share market—quite considerable ones at that. At the beginning of July 1688 Nunes da Costa had shares with a nominal value of 30,000 guilders in his capital account with the VOC’s Amsterdam chamber. There is no hard evidence of insider trading, but on August 23 there was “only” 12,000 guilders left in Nunes da Costa’s account. He had sold shares with a nominal value of 18,000 guilders within a couple of weeks. Might he have done that because he knew about the stadholder’s plans? But in that case, surely he would have tried to sell his shares as unobtrusively as possible so that his reasons would not become common knowledge. There were share traders who knew that war was coming. Joseph de la Vega described the situation in Confusión de confusiones: “The bears sounded the trumpet, and shouted that war would be declared, and they roared so loudly that the bulls were appalled by the reverberations.” Everyone wanted to sell in the panic that ensued. But, as some people wanted to sell in order not to lose still more [than they already stood to lose], others to avoid any loss at all, others again in order still to gain something, the selling became general, and dejection supervened everywhere. Those who were compelled to take delivery [of shares contracted for earlier], sold again in order to be able to cover their obligations. He who was in the possession of hypothecated shares sold them because their value had sunk under the amount of the sum borrowed [to carry them]. He who had bought sold lest he should lose even more, and sold still more in order to make up for the [earlier] loss. The few sellers who had already sold short [purposefully] caused a further fall of the prices, encouraged by the prospect of a profit and seeking to exploit their luck. In the end people went begging with the shares [as it were], as if one asked alms of the [prospective] purchaser. Such a panic, such an inexplicable shock was produced that the whole world seemed to crumble, the earth to be submerged, and the heavens to fall.18 221

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Confusión’s shareholder was enraged by the men who spread rumors about the war. What a terrible cruelty it was that these destroyers of the Exchange made pass for an accomplished fact not only what was going to happen, but even things that could only possibly occur! The bears foresaw that [under certain circumstances] the United Provinces would wage war, and this presumption was a sufficient basis for them to proclaim the outbreak of war. Yet I am not surprised at [their forecast], but at the fact that, in the mere possibility of the war, they saw the outbreak already certain.19

In other words it was not yet certain there would be a war, but the speculators were so persistent in what they were saying that everyone thought the Republic was already involved in hostilities. De la Vega does not say who these bears were or where they had acquired their information, but Nunes da Costa or one of the other Amsterdam bankers would have been an obvious source. De la Vega writes as though everyone on the exchange was convinced that war was inevitable, but in his letters Velters was still writing that he did not know why the price had dropped so quickly. Is it possible he had not heard the rumor about the war? Or had he heard it but was unwilling to believe it? Velters was very close to the city council and had good contacts with the authorities in The Hague. It may be that he had complete confidence in the news he received through these channels, whereas he considered the rumors on the exchange to be unreliable scaremongering. Official confirmation of the plans to sail to England with a large body of troops was still not forthcoming. Foreign diplomats were kept in the dark about the fleet’s destination for a long time.20 Amsterdam city council had its suspicions but knew nothing for certain. On September 14 it gave its representatives in the States of Holland instructions to ask for confirmation that the large fleet was only intended to fight North African pirates.21 The ongoing 222

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uncertainty pushed the share price even lower. It reached its lowest point, 414, the day the city council debated the matter. Soon after this the stadholder told the States of Holland and the States General about the troops that were being provided, because at that point he could no longer conceal his intentions. This put an end to the rumors and speculation about William III’s plans.22 As a result the price recovered somewhat. At the beginning of October it was fluctuating between 420 and 430. The shareholder in Confusión de confusiones also noticed that certainty about the war pushed up the price. “And, that you may see that a revival of the stock exchange has already been brought about, I draw your attention to the fact that the shares which had gone down by 180 per cent because of the apprehension of an outbreak of the war have risen again by 100 per cent [of the face value] since its declaration.”23 However, he really exaggerated the amplitude of the price fluctuations. Thanks to the rumors of war it dropped from about 540 to 414, a fall of 136. When the prince’s plan became public knowledge, it rose sixteen points. The price continued to climb when the first reports of the prince’s campaign reached the exchange. The five hundred ships making up the fleet set sail from Hellevoetsluis on November 12 and reached landfall at Brixham in the southwest of England. The prince’s army swiftly succeeded, thanks in part to the fact that English Protestant officers deserted to William III’s side. By the end of November the VOC share price was back above 450 again. In February 1689 William III and Mary Stewart ascended to the throne of England, and later that same year the share price increased to nearly 500. The rapid recovery makes it seem as though the panic on the exchange in August and September 1688 was completely groundless, but of course that was not the case. William III’s invasion could just have easily degenerated into a prolonged war with England, with possibly disastrous consequences for the Dutch East India Company. Nonetheless, the fact that the price bounced back 223

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as soon as the stadholder’s plans were known does show that the traders had overreacted to the first rumors about the invasion. During the tense period when there was still tremendous uncertainty about the intended crossing, it would seem they were watching one another constantly, and the panic was consequently much greater than it need have been.

The Bloodstained House It is doubtful whether Coenraad van Beuningen ever realized that William III became king of England. Little was heard from or about van Beuningen at the beginning of October 1688. He was still making passionate attempts to persuade the Lords Seventeen to consider his proposals. “I beg Your Honor to have some consideration for a man who has exhausted himself so much in the service of the state and the Company,” he wrote to his colleague Johannes Hudde, who in 1688 was both a burgomaster and a VOC director. Van Beuningen asked Hudde to do his best to get the Lords Seventeen “to discuss the sheet of paper with my proposals.”24 Van Beuningen’s public life came to an end shortly after this letter. He never came to the door when the notary Dirck van der Groe called at his impressive house on the Amstel (number 216) from time to time to read out a writ. On these occasions the notary spoke to van Beuningen’s wife, Jacoba, or Jan Baptista Bartolotti van den Heuvel, Jacoba’s brother. They always responded in the same way. “You know Mr. van Beuningen’s condition.”25 We know about his condition from a letter Daniel Petit, the English consul in Amsterdam, wrote to his superiors in London on October 19. “Van Beuningen has lost his mind as a result of the huge losses he sustained in the trading of VOC shares.” Earlier, on September 28, Petit had reported that “van Beuningen lost hundreds of thousands of guilders on the exchange.”26 224

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Had van Beuningen really lost that much money? As far as we can reconstruct events from surviving sources, at the beginning of October 1688 he had not yet lost “hundreds of thousands of guilders.” The forward contracts he had entered into between April and early August with de Lange Adriaens, van Bronckhorst, Pardicque, Capadoce, and Bode all expired on September 1. On that day the share price had sunk to 463, whereas the forward prices in van Beuningen’s contracts were between 528 and 550.67. This meant that van Beuningen lost something over 25,000 guilders on these agreements. It may well be, though, that Petit and all the other stock market watchers saw that van Beuningen’s losses were going to increase dramatically because, besides the forward contracts, in the spring of 1688 van Beuningen had also arranged a number of secured loans. The term of these repos was longer than those of the forward contracts, so the losses became public knowledge less quickly. By the beginning of October, though, it was clear that there were substantial problems because the sums involved in the repos were colossal. Van Beuningen had borrowed 104,000 guilders from Joseph Haskin Stiles with VOC shares as collateral, 42,000 guilders from Samuel de Elisa Abrabanel, 30,000 guilders from Mozes Pereira, 28,000 guilders from Jacob Poppen, 27,000 guilders from Manuel Mendes Flores, 27,000 guilders from Francisco Lopes Suasso, and 9,000 guilders from Dirck Pater.27 These loans added up to 267,000 guilders. The lenders probably knew about the big risks that van Beuningen was taking on the stock market because on these loans the haircuts—the margins that they employed to reduce the risk that the market value of the collateral would be less than the loan’s principal—were substantial. Stiles, for instance, had lent only 433 percent of the nominal value of the pledge, while the price at the moment this repo was entered into (May 1688) was still above 550. The lenders’ losses were limited when van Beuningen defaulted on his repos, but van Beuningen himself lost a great deal 225

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of money on these transactions. He had to pay the margins the lenders did not want to finance out of his own pocket, and that money had now evaporated. In the months running up to the crash of 1688 van Beuningen had hugely leveraged his share portfolio. In other words, he had invested with borrowed money. This enabled him to build up a very significant position in the VOC, which he was convinced would result in a handsome profit if his proposed reforms were to be adopted by the Lords Seventeen, but by making investments with borrowed money, his risk grew exponentially. As a result of the crash, he lost a multiple of the amount he himself had invested in the VOC. Overall he lost about 100,000 guilders. Let us put this sum into perspective. In 1684 three large houses at 621, 623, and 625 Herengracht, just around the corner from van Beuningen’s own house, were valued at 4,000 guilders each.28 His losses tipped van Beuningen, already rather unstable, over the edge. At his wife’s request he was placed under guardianship and spent the last years of his life in a back room in a small house on the Amstel. In his confused state he wrote many letters—to ministers and churches now, not to the VOC directors. Sometimes he would walk the streets at night raging and yelling. The story goes that on one such night he drew graffiti on his former home. If one looks very closely at the façade of 216 Amstel, one can see in red a few Hebrew symbols, a small sailing vessel, and the names “van Buenige” and “Jacoba.” Did he really, as tradition would have us believe, write this with blood from a self-inflicted wound? Whatever the case may be, the house on the Amstel has been known ever since as “the bloodstained house.” When he died in 1693, van Beuningen left only a few garments, a bed, a couple of chairs, a desk, and a “head of a man” by Rembrandt valued at seven guilders.29 And how did the stock market fare after the crash? Everything was soon back to normal as though nothing had happened. There were of course many dealers who had lost money, but the price 226

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rose so steeply again at the end of the year that most of them were soon able to recoup their losses. The number of defaults in 1688 was not high. This was because the fall in the price—16 percent—was significantly smaller than in 1672, when it had been nearly 49 percent. And the share traders had also learned from the earlier crash. Van Beuningen, for example, who was widely known to have taken gigantic risks on the exchange, could not continue to stack up forward contracts indefinitely. He had been forced to resort to repos for the lion’s share of his position in VOC shares. This still meant he was taking huge risks—and when the price plummeted he took a huge loss— but the lenders were not dragged into van Beuningen’s downfall because they could soon sell the collateral. The dealers who had entered into forward contracts with van Beuningen were fortunate that he had been a wealthy man before the crash. His house and other possessions were sold, and the proceeds were used to pay the counterparties a substantial part of what was due to them. But this was too late for Francois Pardicque. Without the money van Beuningen owed him, he was unable to meet his commitments and went bankrupt at the end of October 1688. There are no other known cases of traders who became insolvent as a consequence of the price slump. The immense effects of the 1672 crisis had made the share dealers very conscious of the risks associated with the business they were in. They became more cautious, and in 1688 the outcome of the sharp drop in the share price stayed within bounds. As the years passed, however, awareness of the immense risks slowly faded, and, as we shall see in the epilogue, in 1720 the next crisis arrived—this time without a war or even the threat of war. If there is one lesson to be learned from the crises on the seventeenthcentury share market, it is perhaps that a crash is needed now and again to remind traders to be mindful of the risks that accompany buying and selling shares.

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The World-Famous Book Again

the merchant and the philosopher in Joseph Penso de la Vega’s Confusión de confusiones both lost money in the crash of 1688. They complained about it to the shareholder, who responded by saying that they did not come out of it too badly. The crash had hurt him much more. One does not have to be an Atlas to take a share on one’s account, to pledge it or take delivery of it, for since honor is not in jeopardy, the loss can be recovered by persistence. But I am in so deep that I no longer make jests about it, for I see that honor is lost. My only consolation is that I am going under through misfortune, not stupidity.1

The shareholder then embarks on a lengthy explanation of all the trickery and deceit that exist in the stock market. This lecture is intended to safeguard the merchant and the philosopher from ignorance, so that if they ever decide to buy and sell shares again, they will only lose money as a result of bad luck. A number of

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historians have concluded from this that Confusión de confusiones should be seen as a trading manual intended for people—Jews in the first instance, for his readers had to speak Spanish—who are considering starting to deal in shares.2 And there is indeed some justification for looking at Confusión de confusiones as a manual, because in the foreword de la Vega admits that one of his motives for writing it was “to describe a business (to those who are not engaged in it) which was on the whole the most sound and the most useful that existed at that time” and “the most fair and noble in all of Europe.”3 Yet Confusión de confusiones could never have been a very practical guideline. The explanation of the trading technique is very difficult to understand, and the recommendations the shareholder makes are generally speaking not very realistic. Take the following example. The shareholder’s advice to the philosopher, who at the beginning of the book says he is afraid of losing a lot of money if he were to buy and sell shares, is to start with options. The reasoning is that if you buy an option, you know you will never lose more than the option premium that you pay. The profit, on the other hand, “can exceed your imagination.”4 There is nothing wrong with this justification, but it is better not to take it as encouragement to buy options at any price. A dealer will, after all, always have to weigh up the premium being requested against the risk he is covering with the option transaction. This is not a simple analysis, and an option can actually only lead to disappointment for someone who has never before been actively involved in share trading and has no inkling of the fickleness of the share price. Perhaps this remark was not, in fact, intended as encouragement for the reader of Confusión de confusiones to start dealing in options but rather as a warning of the dangers of the options market, because the merchant’s first options deal was not a success. When the merchant first mingled with share traders on the exchange, so he relates, he asked what the premium was for an

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option for the supply of a VOC share on a particular day at a particular price. One of the rogues retorted cunningly that he would not bind himself to any rate, but would estimate the premium as 20 per cent; I offered him 15 per cent, whereupon he accepted my proposition with the remark that he would take the risk as a favor to me. And whereas I was at the time grateful for this courtesy, I was informed today that the premium amounted to 9 [per cent] at most.5

The merchant was misled. He knew virtually nothing about the business when he walked into the exchange and so fell into the hypocritical dealer’s trap. The shareholder did not ask himself if he was the cause of the merchant’s ineptitude and ignorance. “Oh, wretched me, who like the man who wanted to teach a raven to speak have wasted my time and my toil! . . . To what end did I give you so many lessons about what you should do, if they served merely to make the folly even worse and the stupidity even more terrible?”6 And he was not done yet. “It was stupid to let yourself be deceived, for after so much advice to stand firm had preceded them mistakes cannot be explained away.”7 We do not know whether de la Vega bought and sold shares himself. His name is not to be found in any of the sources concerned with share trading, but there can be no doubt that he was well informed. It is possible he sought advice about the technical side of his account from his older brother, Abraham Penso Felix, who was very active on the exchange and whom we came across several times earlier in this book. Whatever the case may be, the explanation in Confusión de confusiones of how the market works is correct, but it is not a practical handbook. De la Vega describes the trading techniques in a very long-winded way, and, as the example of options shows, a reader who wants to

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use Confusión de confusiones as a manual would have to read between the lines for realistic tips. Could it be that de la Vega had another objective in mind when he wrote his book? He gave three motives. “The first was to fill my empty hours with a diversion which, although modest, is not a disgrace.” The second was to describe trading for people who were not familiar with it. “And the third, to paint with the brush of truth the trickery that the rogues, who thus make it a disgrace, engage in, so that some may be amused by it, others be warned by it, and many denounced by it.”8 A book intended to warn and to entertain—that certainly seems to be in line with the contents of Confusión de confusiones. After the shareholder castigates the merchant for not listening to his lessons and for being stupid enough to let himself be cheated in his option deal, he embarks on a long discourse about all the different forms of deception that occurred on the exchange. He warns the merchant and the philosopher about the practices of brokers who pretend to have received big orders in order to influence the price, about dealers who deliberately circulate letters on the exchange containing fictitious news, and about many other types of cheating and deceit. The many references to Old Testament stories and classical mythology reinforce the cautionary effect of the book. Comparison with biblical and mythological sources was a very common storytelling technique in the seventeenth century, and de la Vega used it in his description of share trading to interpret the behavior of share dealers.9 Readers who could not easily fathom the gravity of the chicanery because they knew nothing about this type of business were helped by references to well-known stories. De la Vega considerably embroidered a number of points in his story about buying and selling shares in order to amplify the warning. The guile and deception that were to be found in the stock market feature very prominently in the book. It will certainly have

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figure 12.1 The Hendrick de Keyser Exchange from above (top) and the front (below). Source: Collection of the Capital Amsterdam Foundation, Amsterdam.

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been true that not all share traders did business in an equally honest and upright fashion, as we saw earlier in this book in the cases of Isaac le Maire and Hans Bouwer. And dealers could indeed influence the VOC share price with relative ease. In 1688, for instance, Jeronimus Velters succeeded in pushing up the price a few percent simply by pretending he wanted to buy. This must have enabled malevolent businessmen to nudge the price up or down temporarily by simulating a particular interest or disseminating false information and in so doing make a personal profit. What de la Vega wrote about the dastardly games on the exchange was essentially true, but by devoting so much attention to this aspect, Confusión de confusiones gives the impression that the trading in shares was all about deceit. De la Vega exaggerated on other points too. He made the crash of 1688 out to be much worse than it actually was. In Confusión de confusiones the shareholder says that the VOC share price fell to 365 at the end of August.10 Jeronimus Velters, on the other hand, who went to the exchange every day during this period, reported a minimum price of 463 in his correspondence.11 Might Velters have passed on fictitious share prices to his trading partner, Willem Boreel, possibly to disguise their loss on the exchange? Or might de la Vega have described the crash of 1688 as being much worse than it really was for dramatic effect? The book will certainly also have provided entertainment, not to mention a little opportunity for gloating. Everyone in Amsterdam—and particularly the members of the Portuguese Jewish community, for whom Confusión de confusiones was intended—must have known people who lost money in the 1688 crisis. Speculation about how big a hit certain dealers had taken would have been on everyone’s lips. De la Vega jumped on this bandwagon very cleverly. The wailing of the merchant, the philosopher, and the shareholder, who all suffered losses when the price plummeted in 1688, would have sounded very familiar to the readers. When it came to the unfortunate transactions of the 233

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merchant, philosopher, and shareholder, people who were not personally active on the exchange and who in previous years had seen businessmen grow rich without needing to make much effort, could chuckle to themselves about the greed of the dealers and the bruising fall that many of them subsequently took. But what good is Confusión de confusiones to us twenty-firstcentury readers? Can it really be regarded as one of the ten best books on investment ever written? There is no doubt that the book contains general advice that is useful to investors. For example, the shareholder says that people should “take every gain without showing remorse about missed profits, because an eel may escape sooner than you think. It is wise to enjoy that which is possible without hoping for the continuance of a favorable conjuncture and the persistence of good luck.”12 Further on he adds: Whoever wishes to win in this game must have patience and money, since the values are so little constant and the rumors so little founded on truth. He who knows how to endure blows without being terrified by the misfortune resembles the lion who answers the thunder with a roar, and is unlike the hind who, stunned by the thunder, tries to flee. It is certain that he who does not give up hope will win, and will secure money adequate for the operations he envisaged at the start.13

These are interesting and perhaps even useful pieces of advice, but such recommendations do not make Confusión de confusiones unique. The technical side of the work is not a compelling reason to read it either, because de la Vega’s explanation is very difficult to follow. In addition, the subtleties of seventeenth-century share trading are not directly relevant to the modern investor. What above all gives Confusión de confusiones its impact is that it is one of a kind. It was the first book about a trade that has developed into one of the central pillars of the global economy, and that makes it special. Modern readers can marvel at the world 234

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of shares and money in the seventeenth century. This places the work in the same genre as movies like Wall Street and, more recently, Money Never Sleeps. These movies about today’s stock markets do not present a balanced picture of the business either, but what draws people are the suspense, the drama, and the intriguing stories of the trading floor.

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epilogue

in the seventeenth century, large-scale trading in shares and derivatives was unique to Amsterdam, although there were companies outside the Republic that had issued shares when they were founded. The East India Company (EIC) was established in England in 1600, and there were enterprises financed through shares in Italian city-states like Genoa and Venice as early as the late Middle Ages. However, the shares in these Italian and English companies were rarely, if ever, traded—chiefly because these enterprises were much smaller than the VOC and, unlike the Dutch Company, did not have long-term aims. Shareholders in the EIC, for instance, only ever invested their money for short periods. If the company subsequently needed new capital, a new subscription was organized. This situation continued until 1657, and for all that time there was less need for investors in the EIC to trade their shares than there was for VOC shareholders because it was never long before they got their money back.

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Outside Amsterdam there was no significant trading in derivatives at all. The practice did not start in London until about 1690. Amsterdam is consequently entitled to claim that it was the cradle of the first stock exchange. The city has every right to be proud of this, but did it gain any economic benefit from it? The short answer to this question is no. Amsterdam and the Dutch Republic would have become just as rich had there been no trading in shares. Buying and selling VOC shares, after all, was essentially a matter of moving money around. One dealer’s profit was another’s loss. The joint wealth of all traders only increased if the share price rose—and this was much more likely to be caused by good results from the VOC than by dealing in shares. In other words, trading shares did not add value. In the seventeenth century it was even suggested on occasion that buying and selling shares had a negative impact on the Republic’s prosperity. Merchants, it was alleged, spent much too much time and money wheeling and dealing in shares—time and money they could have devoted to a more tangible type of trading with greater added value for the economy.1 The critics had a point. Take Jeronimus Velters, whose life was largely engaged in share dealing. Sometimes he would go to the exchange, Dam Square, and the Collegie van de Actionisten every day for weeks on end. His correspondence with trading partners and informants also occupied a great deal of his time. At times when there was turmoil or uncertainty on the exchange, Velters’s life was totally dominated by the share trade. Even so, it is doubtful that he would have become involved in a type of business with greater added value for the economy had he not been so active in share dealing. Velters was a very rich man with a magnificent canal-side mansion in Amsterdam, a country house in Nigtevecht, and a successful career as a merchant behind him when he really became actively involved in the share trade. He may well have seen his activities in the stock market as an exciting pastime, and, had the market not existed, he would probably have chosen to live the life of a gentleman of leisure with independent means. 238

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Velters was certainly not the only trader in such a fortunate position. But at the same time there were also many share dealers— the less well off, the men without country estates and doublefronted canal-side mansions—who might have contributed more to the Republic’s economy had they not spent so much time at the exchange. This does not alter the fact that doing business in shares could prove to be personally advantageous for the men in this category. The trade in shares and derivatives enabled them to invest their money for longer or shorter periods and, it was to be hoped, achieve a positive return. They could also use the derivatives that changed hands in Amsterdam to manage the risks linked to their investment portfolios. The market in VOC shares thus generated benefits for individual investors and in so doing indirectly for the economy of the Republic as a whole. The stock market could have made a much greater contribution to the economy if the VOC and, above all, other enterprises in the Republic—companies that had not issued publicly tradable shares—had made greater use of the opportunities offered by the market. Companies could have obtained a great deal of money from investors through new share issues. We should not forget that the Republic, particularly Amsterdam and the province of Holland, was overflowing with money during the Golden Age. There was so much wealth, in fact, that many people did not know what to spend it on. De la Vega wrote about this in Confusión de confusiones. There was “money galore,” but there were not enough possibilities for “placing” it.2 Large enterprises could have attracted this source of finance by issuing shares. Yet none of them—bar one—ever did. The VOC did not increase its share capital at any time after the subscription of the Company’s initial capital in 1602, even though, given the big loans that the VOC took out, the Company was in constant need of more capital. Why did it not issue more shares? From the 1640s onward, with a share price that was always above 400 (with the exception of a brief period in 1672–1673), the VOC could have 239

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raised a lot of money. Is it possible that it simply never occurred to the directors that they could use the share market to increase their capital? That would indeed appear to be the case, for there are no indications that the subject was discussed in meetings of the Lords Seventeen. Aside from the VOC, the West India Company (WIC) was the only other enterprise that issued publicly tradable shares in the seventeenth century. However, the subscription to the WIC capital in 1621 was not a success. Prior to the foundation of this company, during the Twelve Years’ Truce, many merchants had set up flourishing trading activities with the Caribbean and other parts of America. When war with Spain was resumed in 1621, they were very reluctant to relinquish the positions they had acquired and invest in the company that had been granted a monopoly of the trade with America and West Africa. This was also the period in which the dissatisfaction of the VOC shareholders reached great heights. Naturally enough, this blunted their enthusiasm to invest in a similar company. The WIC never developed into a successful concern. By 1674 the burden of debt had grown to such an extent that it was unsustainable. The company went bankrupt and was immediately reincarnated as the Second West India Company, in which the shareholders of the original WIC were compelled to deposit new capital. It was all to no avail. The Second WIC appeared to be successful for a while but—like its predecessor—rapidly ran up huge debts.3 Investors shied away from buying shares in this company on the secondary market because of the disastrous financial situations of the First and Second WICs. There was virtually no trading in WIC shares, and the price remained low throughout the lifetime of the companies—the market value of the shares was often even lower than their nominal value. The fact that there were no companies other than the VOC and the WIC with publicly tradable shares during the seventeenth century was attributable in part to the scarcity of enterprises with such a great need for capital that issuing shares was worth 240

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considering. Large machines, for which substantial funds would have been needed, had not yet been invented. Even breweries, a sector with a demand for capital above the average for the times, were able to manage on finance supplied by the owners, with additional loans if needed. The VOC and the WIC were clear exceptions in the Republic—large organizations with thousands of employees, huge warehouses, and a big fleet at sea. Another factor in the equation was that a company could not decide independently to issue shares; this required the permission of the States General. We do not know whether the States General rejected all applications or whether there was little enthusiasm for asking for permission for a public share issue, but the latter is the more probable. The examples of the VOC and the WIC had, after all, shown that the States General demanded significant influence on policy in exchange for authorization. It is quite possible that this deterred other companies from going down the same path.4 Around 1660 the absence of new share issues caused stagnation in the development of the share market. At about the same time there was a flourishing forward and options market, traders could borrow money on a share as collateral without much difficulty, the monthly rescountering ensured efficient settlement of contracts, and the privacy of clubs like the Collegie van de Actionisten gave speculators a reasonable degree of security that their contracts would be fulfilled. The market continued to grow. At the end of the 1680s the number of share transfers (the only part of the market whose volume can be determined) was 50 percent higher than in the 1660s. But it would not be until 1720 that anything really new happened in Amsterdam.5 However, share trading outside the Republic did not stand still prior to 1720. For many years the London stock market had lagged behind Amsterdam’s, and, as we have already seen, there was only small-scale trading in EIC shares. Then, around 1690, there was a marked change, and activities in London started to develop. Suddenly everything was happening at breakneck speed. 241

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Was Dutch financial expertise brought to England in William III’s wake? We cannot say for certain, but the moment when the English stock market took off would seem to suggest that there was some Dutch influence. In 1690 the number of share transactions on the London market began to shoot up, and the traders started dealing in derivatives—the same types of instruments used by Amsterdam dealers. The most important trend in this decade, though, was that at least twenty-five companies issued shares on the exchange in the space of just a few years. There was a real boom in new shares. The rapid development in London was given a helping hand by the Nine Years’ War (1688–1697) and England’s involvement in it. The armaments industry was operating at full capacity, and a majority of the companies issuing shares in those years produced arms or other military supplies. By no means were all these enterprises successful—most had been liquidated by the turn of the century—but London had now discovered that the stock market could be used to attract new capital.6 Meanwhile the English government was looking askance at the market. Companies were accumulating large volumes of capital effortlessly by issuing shares even as the government was buckling under the weight of the huge debts that were the legacy of the Nine Years’ War. The powers that be wanted to share in the benefits of the enthusiasm on the exchange and came up with the idea of putting the English government’s debt into a company—the South Sea Company—whose shares could be traded. Investors in government bonds were given shares in the South Sea Company in exchange. Initially the plan seemed to be working splendidly. The government did not have to pay as much interest as before, and the South Sea Company shareholders appeared to have struck gold because the shares prompted widespread feverish speculation—their value rose rapidly. Londoners began to believe that the exchange was a gateway to an infinite supply of money, and a massive boom developed—the South Sea Bubble of 1720. Countless companies were 242

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figure epi.1 The VOC share price between September 1602 and December 1688. This graph is based on 823 recorded prices. The points shown are average monthly values. Linear interpolation was used for months without price data. All prices are ex-dividend. Sources: SAA, Velters, inv. nos. 1–4; SAA, Deutz, inv. nos. 275–276, 291–295, 301; SAA, Merchants’ books, inv. nos. 39–40; SAA, PJC, inv. no. 858; SAA, Notaries, Card Indexes; SAA, Notaries, inv. nos. 2238– 2240, 4131–4136; BT, TA, inv. nos. 112–113, 119k, 119n, 215; PA, Microfilms sp119/36, sp119/38.

set up, often without any real plan and with the sole purpose of raising money on the exchange. Obviously this could not last, and it was not long before the bubble burst, but not until the boom spread to Paris and—to a lesser extent—the Republic. In 1720 over forty new enterprises were suddenly established in the United Provinces and issued shares on the exchange. Many of them were likewise shell companies, but there were exceptions. An insurance company established in Rotterdam in 1720 still exists, albeit under a different name. The boom in the Republic was minor compared with what happened in England and France. Caution on the part of the government had ensured that a relatively small number of companies were set up. 243

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Needless to say, the South Sea Bubble of 1720 is anything but a good example of how a stock market generates added value for the economy, but the events did make the market more mature. Regulations were introduced in England to prevent the bubble’s repetition, and when more enterprises with substantial capital needs were founded during the Industrial Revolution—railway companies in the nineteenth century, for instance—people had learned from the experiences of 1720 how to approach the stock market. The London market thus continued the development started in Amsterdam. Later this knowledge and experience of stock exchanges was transferred to countless other places in the world. Today’s trading in shares is infinitely more extensive and complex than in seventeenth-century Amsterdam, but the basis created during the buying and selling of VOC shares is still evident. More than four hundred years since the establishment of the VOC and the beginning of share trading, deals are still being done through forward contracts, options, and repos. And share traders are still searching for ways to effect transactions at the lowest possible cost. And the market population still contains investors who are interested in the long term and speculators who buy and sell very quickly. And wheeler dealers are still finding ways to avoid regulation . . .

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searching through archives can be very dull work. I spent many hours at the microfilm viewers in the National Archives and Amsterdam City Archives in my search for court cases involving share dealers and notarial instruments about share transactions that would show precisely how the Amsterdam stock market worked. A whole day peering at poor images of difficult seventeenthcentury handwriting often produced nothing more than a splitting headache. But sometimes apparently minor details that deepened my understanding of seventeenth-century share trading would suddenly emerge. The notarial writs dating from the spring and summer of 1672, when traders told the notary Adriaen Lock in no uncertain terms that they would invoke the edict prohibiting naked short selling, are an example. Confusión de confusiones told us that dealers sometimes defaulted on their obligations on the grounds of the edict prohibiting naked short selling. But Confusión de confusiones is a literary source. No one knew how much Joseph de la Vega made up. These writs did more than confirm de la Vega’s story—they also 245

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clarified in one fell swoop the circumstances in which traders chose to exploit this loophole. It was also known that money could be borrowed by pledging VOC shares, but it was not until I had Joseph Deutz’s accounts in front of me—and I could trace exactly who had given him a share as collateral, how much he loaned on it, and how the transaction was ultimately settled—that I understood precisely how the Amsterdam repo market worked. It might be a cliché, but at such moments the pieces of the puzzle fell into place and burrowing through the archives was a joy. I began my research into share trading in seventeenth-century Amsterdam in the fall of 2006. I spent four years reading literature, studying original sources, going to conferences and workshops, and writing a thesis. Entitled The World’s First Stock Exchange: How the Amsterdam Market for Dutch East India Company Shares Became a Modern Securities Market, 1602–1700, it was finished in 2010. It has not yet appeared in book form, but it can be downloaded as a PDF file from http://www.lodewijkpetram.nl. After I received my research degree I went back to my computer and wrote De bakermat van de beurs—the present book. So is it simply a popular version of the thesis? Not entirely. The thesis argues that the Amsterdam market for VOC shares can be seen as a “modern” stock market—the first modern stock market in history—while the focus in De bakermat van de beurs is on the narrative of how the buying and selling of VOC shares developed. The book is consequently intended to be more anecdotal. The heart of the book consists of the stories of the men (and the occasional woman) who traded VOC shares. We do not have all the intriguing details of these stories. Most sources (about which I shall say more below) simply state that trader A had not yet received a share he believed he was owed by trader B. Period. I have consequently taken the liberty of slightly romanticizing most of the anecdotes that open the chapters in this

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book. This is true, for instance, in the case of Thomas Sprenckhuysen, who sold his share to the Raphoen brothers, and in the account of the option deal between Jacob and Joseph Pereira. And as for the story of the two maids who subscribed to the VOC’s initial capital shortly before the share register was closed, obviously I do not know their reasons for investing. The correspondences of Jeronimus Velters and Jacques de Velaer Jr., however, do contain a wealth of fascinating details. I am not the first to research the Amsterdam trade in VOC shares. As far back as 1919 M. F. J. Smith published Tijd-affaires in effecten aan de Amsterdamsche beurs, which deals with edicts, regulations, and some of the pamphlets about buying and selling shares in the seventeenth and eighteenth centuries. This book also contains a brief summary and analysis of Confusión de confusiones. Smith expanded this summary significantly in the introduction to the Dutch translation of Confusión de confusiones (1939), the complete text of which is available at http://www.dbnl.org. Johannes van Dillen unearthed a great deal of archival material about Isaac le Maire’s bear consortium. Transcriptions of these documents were published in the article “Isaac Le Maire en de handel in actien der Oost-Indische Compagnie,” which appeared in the Economisch historisch jaarboek in 1930. Van Dillen also published the share register of the VOC’s Amsterdam chamber in Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (1958). This book provides biographical data about almost all those who contributed to the initial capital of the Amsterdam chamber. The extensive introduction to this work discusses the establishment of the VOC and the public subscription to the startup capital. More recently Neil De Marchi and Paul Harrison wrote “Trading ‘in the Wind’ and with Guile: The Troublesome Matter of the Short Selling of Shares in Seventeenth-Century Holland” (1994), which explores the moral aspects of naked short selling. The work

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of Oscar Gelderblom and Joost Jonker, in particular, also deserves recognition. In their article “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612” (2004) they present a rigorous analysis of the financing of the precompanies and the VOC. In “Amsterdam as the Cradle of Modern Futures and Options Trading, 1550–1650” (2005) they address the advent of options trading in Amsterdam, first in the grain and herring trades and later on the stock market. Gelderblom and Jonker, together with Abe de Jong, recently examined the VOC’s organizational structure. In “An Admiralty for Asia: Isaac le Maire and Conflicting Conceptions About the Corporate Governance of the VOC” (2011) they show that the States General, directors, and shareholders had such different interests that disputes about the VOC were inevitable. Others have also written about the VOC’s organizational structure. I refer here to two recent books on the subject. In De geoctrooieerde compagnie: de VOC en de WIC als voorlopers van de naamloze vennootschap (2005), Henk den Heijer investigates to what extent the VOC and WIC exhibit similarities to the public corporation (naamloze vennootschap, NV), the form of enterprise that listed companies in the Netherlands currently have. In A History of Corporate Governance, 1602–2002 (2003), Paul Frentrop places the VOC’s corporate management and the debates about it that ensued in the seventeenth century at the beginning of a lengthy development. Immense amounts have been written about the VOC in a more general sense. As far as this book is concerned, Femme Gaastra’s The Dutch East India Company: Expansion and Decline (2003) and Bewind en beleid bij de VOC: de financiele en commerciele politiek van de bewindhebbers, 1672–1702 (1989) are the most worthy of mention. The first gives a clear, concise overview of the Company’s history and is a good read. The second is an academic work—the basis for Gaastra’s research degree—about how the 248

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VOC was run in the second half of the seventeenth century. Coenraad van Beuningen plays a major role in it. Together with Jaap Bruijn and Ivo Schoffer, Gaastra compiled data about all VOC flotillas. This research was published in the three bulky volumes of Dutch-Asiatic Shipping in the Seventeenth and Eighteenth Centuries (1979). The database can also be consulted at http://www. historici.nl/Onderzoek/Projecten/DAS. Pieter van Dam’s Beschryvinge van de Oostindische Compagnie (1701) is of interest as a general account of the VOC. Van Dam was the VOC’s general secretary (advocaat), and in that capacity he attended all the meetings of the Lords Seventeen and the Amsterdam directors and so knew better than anyone how the Company conducted its business. He wrote this seven-volume history of the VOC on the Company’s instructions. It is accessible in full at http://www.historici.nl/retroboeken/vandam/. For those who like to study figures, De jaarlijkse financiele verantwoording in de VOC (1984), by the retired accountant J. P. de Korte, is essential reading. De Korte collected all the available data about the VOC’s corporate finances in order to write this work. The figures were then organized and presented in such a way that anyone who has ever looked at financial statements can understand them. Anne Goldgar recently wrote the very good Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (2007) about the tulip bulb bubble. In my view Goldgar does not say enough about the financial aspects of bulb trading, but she paints a splendid picture of the trading community, which gathered on winter evenings in taverns all over the province of Holland (and a few in Utrecht) to buy and sell tulip bulbs. Jonathan Israel has written a number of excellent articles about Portuguese Jews in the Republic. “Jews and the Stock Exchange: the Amsterdam Financial Crash of 1688” appears in the compilation Diasporas Within a Diaspora: Jews, Crypto-Jews, and the World Maritime Empires (1540–1740) (2002). “The Dutch 249

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Republic and Its Jews, 1699–1715” is in Conflicts of Empires: Spain, the Low Countries, and the Struggle for World Supremacy, 1585–1713 (1997). Reluctant Cosmopolitans: The Portuguese Jews of Seventeenth-Century Amsterdam (2000) by Daniel Swetschinski is a very good and comprehensive study of the Jewish community in seventeenth-century Amsterdam. The introduction in the Dutch edition (1939) of Joseph de la Vega’s Confusión de confusiones was referred to earlier. The preamble by Hermann Kellenbenz to the 1957 English translation is also worth reading. Kellenbenz gives a good but nevertheless not easily understandable summary of the parts of Confusión de confusiones that contain explanations of how share trading took place. Other interpretations of Vega’s book can be found in the writings of Jose Luis Cardoso (“Confusion de confusiones: Ethics and Options on Seventeenth-Century Stock Exchange Markets,” 2002) and Jonathan Israel (“Een merkwaardig literair werk en de Amsterdamse effectenmarkt in 1688. Joseph Penso de la Vega’s Confusión de confusiones,” 1990). Anyone who wants to know more about civil case law in the Republic should read Marie-Charlotte le Bailly’s books Hof van Holland, Zeeland en West-Friesland: de hoofdlijnen van het procederen in civiele zaken voor het Hof van Holland, Zeeland en West-Friesland zowel in eerste instantie als in hoger beroep (2008) and, with Christel Verhas, Hoge Raad van Holland, Zeeland en West- Friesland (1582–1795): de hoofdlijnen van het procederen in civiele zaken voor de Hoge Raad zowel in eerste instantie als in hoger beroep (2006). Local Amsterdam regulations are published in Handvesten; ofte Privilegien ende octroyen: mitsgaders willekeuren, costuimen, ordonnantien en handelingen der stad Amstelredam (5 volumes, 1748–1678), compiled by Hermannus Noordkerk. The edicts promulgated by the States General and the States of Holland can be found in Groot placaet-boeck, vervattende de placaten, ordonnantien ende edicten van de Staten Generael der Vereenighde 250

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Nederlanden, ende van de Staten van Hollandt en West-Vrieslandt (9 volumes, 1658–1796), collected by Cornelis Cau and others. The best and most complete general history of the Republic is Jonathan Israel’s The Dutch Republic: Its Rise, Greatness, and Fall, 1477–1806 (1995). The First Modern Economy: Success, Failure, and Perseverance of the Dutch Economy, 1500–1815 (1997) by Jan de Vries and Ad van der Woude is rather hard going but provides a very extensive overview of the Republic’s economic history. The capital accounts of the VOC’s Amsterdam chamber were the basis for my archival investigation into the trading of VOC shares. These financial records are part of the Archive of the VOC in the National Archives in The Hague. The journal in which the bookkeeper recorded the share transfers in order of receipt for the 1602–1612 period has survived. The ledgers with the capital accounts of all shareholders are available for the years after 1628. The capital accounts are a superb source, but they present a limited picture of share trading. They only contain information about the change of ownership of shares, without reporting the price at which the transaction took place. However, very many deals were done without a share changing hands, and there are virtually no traces of all these bargains to be found in the archives. They were executed privately. While the edict of 1610 specified that all traders must have their transactions recorded by the VOC’s bookkeeper, only an occasional dealer complied. A simple contract was drawn up for most transactions, and it was torn up after settlement. There were also deals between traders that were only agreed to verbally. All this meant there was no way I could make an estimate of the volume of the Amsterdam share market. The only possible quantitative yardstick was the number of traders who appeared before the bookkeeper in East India House to transfer a share. Nevertheless some data about these private transactions, scattered among many different archives, have survived. There are 251

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some share dealers’ family archives, for instance, in which traces of these deals and share price information can be found. For the beginning of the seventeenth century, there is the Thysius Archive, housed in the beautiful seventeenth-century Bibliotheca Thysiana in Leiden. This library was founded in 1653 with a bequest from Johannes Thysius, and all the family documents were moved to it then. This family is of great interest in the history of share trading. Thysius’s father, Anthoni, and his grandfather, Hans—who both still used plain Thijs as their last name—were very active merchants in the late sixteenth and early seventeenth centuries in Amsterdam and also bought and sold shares. Parts of both men’s financial accounts have survived. Among Hans Thijs’s documents is a one of the very rare “VOC shares,” the receipts that investors were given when they paid the last installment of their subscription. As well as documents belonging to the Thijs family, this archive also stores papers from families related by marriage, including the l’Empereurs. None of the financial records of Antoine l’Empereur (Johannes Thysius’s great-uncle) have survived, but the very interesting correspondence with Jacques de Velaer and his son Jacques Jr. has. The most important documents in the Thysius Archive date from around 1610. There are almost no surviving documents belonging to dealers in VOC shares that date from subsequent decades. Although Louis Trip’s accounts cover a long period (from 1633 to 1684, the year Trip died), the information about the trade in VOC shares they contain does not start until the 1660s. Sadly Trip’s accounts, now in the Amsterdam City Archives, are superficial and so of little interest. If he purchased an option, for instance, he only noted the name of the counterparty and the size of the option premium he paid or received. The type of option (put or call), the exercise date, the strike price, and the underlying value remain guesswork. The financial accounts kept by Joseph Deutz and his mother Elisabeth Coymans (which can be found in the Deutz family 252

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archive in the Amsterdam City Archives) contain much more useful data about share trading. Both made loans against VOC shares on a large scale and kept meticulous records of their dealings. Deutz also traded in shares and derivatives. All these transactions can be reconstructed using his books. There is no clearer picture anywhere of seventeenth-century share trading than in Joseph Deutz’s surviving ledgers and journals, which cover the 1665–1684 period. Jeronimus Velters’s archive, which is also in the Amsterdam City Archives, is very small, but the little it does contain is extremely interesting. Velters wrote all his letters in duplicate, among them many about share trading, and his letter books covering a long period, 1667 to 1710, have survived. Finally the Archive of the Portuguese Jewish community in Amsterdam, similarly in the City Archives, contains many personal papers relating to buying and selling shares. They ended up in this archive because the synagogue looked after the estates left by many members when they died. Most of the estates date from after 1700, but the archive also contains some good documentation from before the turn of the century. Manuel Levy Duarte’s papers are particularly important to research into the seventeenth century. Aside from his correspondence with Rodrigo Dias Henriques and a few rather chaotic journals of share transactions, there are some interesting items in boxes of loose documents. The contents of these boxes create the impression that when Levy Duarte died, someone gathered up all the papers lying around at his home and took them to the synagogue. In among the tax demands, receipts from tailors and cobblers, and notes about the rent that Levy Duarte received on his properties, there are many bills from brokers who had assisted in share transactions. Court archives also contain a great deal of information about the trade in VOC shares. However, this data has to be approached with a good deal of caution. Court sources, by definition, only contain information about deals that went wrong, so very high-risk 253

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transactions are probably overrepresented in them. I have therefore used data from court documents to supplement other sources and to discover the procedure when transactions ran into problems, not to reconstruct an overall picture of share trading. At the start of a dispute, share traders went to a notary to issue a writ advising the other party of their position and the claim they were bringing. It is no coincidence that the vast majority of the writs relating to share trading date from the years when there were major fluctuations in the VOC share price. This was because significant price movements meant that one of the parties to a bargain had suffered a substantial loss, and this increased the chance of a dispute. The archives of the notaries with practices in Amsterdam, which contain protocols during the period from 1578 to 1915, are enormous. The building on Vijzelstraat has over two miles of shelving. Seventeenth-century notaries only account for a part of this huge mountain of paper, but even so there is far too much for a single researcher to sift through. Fortunately there is a card index of summaries of writs, classified by keyword. I seized on these index cards with gratitude, but for the period after 1630 the number of cards drops off dramatically, and any notion of system seems to have disappeared from the organization of the collection. So for the years 1672 and 1688—very turbulent times on the exchange and thus years with way above average numbers of notarial instruments concerning share trading disputes—I systematically went through the protocols of the notary who specialized in financial deeds in this period. In 1672 Adriaen Lock, whose office was next door to the exchange, was the notary who took care of the lion’s share of the deeds, and this role was taken over by Dirck van de Groe in 1688. I also requested a few protocols for other years in order to check that I was not missing too many writs, but they contained so little information about trading shares that it was not worth studying them systematically. If a writ achieved nothing and the parties did not reach agreement, traders could go to the Amsterdam aldermen’s court. The 254

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civil law part of this court’s archives has not survived. The papers were destroyed when the court had to move out of the town hall in Dam Square when Louis Bonaparte moved in and the town hall became a palace. As a result, little if anything remains of the many court cases between share dealers. If the parties concerned did not agree with the judgment of the aldermen’s court, they could lodge an appeal with the Supreme Court of Holland. Share traders frequently undertook the journey to The Hague to obtain the opinion of the justices of the Supreme Court of Holland, particularly during the first half of the seventeenth century, when there was as yet no clear jurisprudence about every aspect of share trading. Virtually the whole of the Supreme Court of Holland’s archives are in the National Archives in The Hague. The cases heard by this court are indexed only by the names of the litigants. I looked up in the index all the known names of share dealers—by which I mean the names of people who were known from other sources (the VOC’s capital accounts, family archives, the notarial archives) to have bought and sold shares—and all names sounding Portuguese. I then searched for the written judgments of the cases in which these people were a party. These written judgments contain a record of both parties’ arguments, in which there was also always a note of the aldermen’s court’s opinions, any reply and rejoinder, and the judges’ decision. Generally speaking the ruling only tells you which claims were allowed, which claims were denied, and who had to pay the legal costs. The judges’ reasons remained secret. After every case, the Supreme Court of Holland kept the documents submitted by the parties in the case concerned in a bag. Normally speaking the parties received their part of the documentation in the court case after the judges had given their ruling. Now and again this did not happen, and these bags of documents can now be found in the civil case document collection in the Supreme Court of Holland’s archives. We usually do not know why the document bag was not collected, but it could well be that 255

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the parties simply could not be bothered to travel to The Hague yet again to fetch it. Whatever the reason, there are a few bags of documents relating to cases involving a dispute about share trading. The printed contract for a futures transaction between Willem Muijlman and Philips de Baccher, reproduced in this book, came from one such bag. Each party had submitted his half of the contract as proof. In the photograph, the two halves have been placed one above the other. After the judges of the Supreme Court of Holland had issued their judgment, the parties had the right to lodge an appeal with the Supreme Court of the Republic. This court’s archives are also nearly complete, and the index is similarly limited to a list of names. Here I repeated the procedure of looking up the written judgments in the cases where the names of both parties were known. I have modernized the sums of money quoted in this book. In the Republic the guilder was divided into twenty stivers (fivecent pieces). One stiver was worth sixteen pennings. The Flemish pound was also frequently used as a monetary unit. One Flemish pound was equal to six guilders. In this book I have converted everything into guilders, where each guilder has a hundred cents. Seventeenth-century sources tell us, for example, that the VOC bookkeeper received a fee of twelve stivers for a share transfer. Converted into guilders of a hundred cents, this was sixty cents. Finally I have used the modern names of streets, canals, and squares that now have names different from those in the seventeenth century. The house numbers in this book refer to the present situation. I did not do my research into the trading of VOC shares in complete isolation. On the contrary, many people were involved to a greater or lesser degree. I would like to take this opportunity to thank a few of them. Leo Noordegraaf and Clé Lesger, my supervisor and co-supervisor at the University of Amsterdam, helped me set up the research, oversee it, and bring it to a successful conclusion. Oscar Gelderblom and Joost Jonker, two economic 256

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historians at Utrecht University, were closely and constantly involved in my research and made very useful comments on my academic texts. I acquired a better understanding of seventeenthcentury financial markets during my many discussions with Peter Koudijs. Cátia Antunes helped me by deciphering and translating letters written in Portuguese by Manuel Levy Duarte and Rodrigo Dias Henriques. As I was writing De bakermat van de beurs, Ine Soepnel from Uitgeverij Atlas and her husband read my efforts critically. Cherelt Kroeze from the Capital Amsterdam Foundation made some comments on the text. Lynne Richards translated the book into English. Comments on the manuscript were also made by Eva Thompson, who deserves a special mention here for other reasons too. Haarlem, April 2013

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Notes

1. A World-Famous Book 1. See the glossary at the back of the book for explanations of financial terminology. 2. Joseph Penso de la Vega, Confusión de confusiones. Portions Descriptive of the Amsterdam Stock Exchange (1688), ed. and trans. Hermann Kellenbenz (Boston: Harvard Graduate School of Business Administration, 1957), 22. The original book in Spanish and its translation into Dutch can be found at http://www.dbnl.org/tekst/vega002conf01_01/. The Kellenbenz translation can be found at http://babel.hathitrust.org/cgi/pt?id=uc1.321060 19504239;view=1up;seq=13. Quotations in English are taken from Kellenbenz, where they exist, and the appropriate page number is given; the title is given as Confusion. Where Kellenbenz did not translate a section, the Dutch version has been translated into English by the translator of the present book. The page numbers in these cases refer to the Spanish original, and the title is given as Confusión. 3. M. F. J. Smith, “Inleiding,” in Joseph Penso de la Vega, Confusión de confusiones (1688), ed. M. F. J. Smith (The Hague: Martinus Nijhoff, 1939), 1–47. 4. German edition: Joseph Penso de la Vega, Die Verwirrung der Verwirrungen: vier Dialoge uber die Borse in Amsterdam (1688), ed. and trans. Otto Pringsheim (Breslau, 1919); English edition: Penso de la Vega, Confusion, ed. and trans. Kellenbenz.

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5. Richard Lambert, “Investing by the Book: Richard Lambert Picks the Ten Best Books Ever Written on Investment,” Financial Times (January 28, 1995). 6. Penso de la Vega, Confusion, 21. 7. Ibid., 32. 8. Ibid., 17. 9. Penso de la Vega, Confusión, 130, 138, 186. 10. Penso de la Vega, Confusion, 8. 11. Ibid., 6, 7.

2. A New Company 1. This share register, with bibliographical information about the subscribers and a good introduction, was published by van Dillen: J. G. van Dillen, Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (The Hague, 1958). What follows is largely based on van Dillen. 2. Around 1602, unskilled workers earned about fifty cents a day: L. Noordegraaf, Daglonen in Alkmaar 1500–1850 (Haarlem, 1980). 3. See F. S. Gaastra, The Dutch East India Company: Expansion and Decline (Zutphen, 2003), for the foundation of the VOC and a general history of the Company. The text of the charter is on the Internet. See, for example, http://www.vocsite.nl/geschiedenis/octrooi.html. 4. Oscar Gelderblom and Joost Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612,” Journal of Economic History 64 (2004): 641–672, esp. 648–650. 5. This calculation was done using the purchasing power calculating tool on http://www.iisg.nl/hpw/calculate-nl.php. 6. Gelderblom and Jonker, “Completing,” 648. 7. For a reproduction and transcription of the complete text of the first page of the share register, see van Dillen, Aandeelhoudersregister, 105–106. 8. Johan E. Elias, De Vroedschap van Amsterdam, 1578–1795 (Haarlem, 1903), 153. 9. “‘Gestolen’ VOC-aandeel kost 6 miljoen,” de Volkskrant (August 21, 2004). 10. Pieter van Dam, Beschryvinge van de Oostindische Compagnie 1A (1701), ed. F. W. Stapel (The Hague, 1927) 145. 11. Gelderblom and Jonker, “Completing,” 656–657. 260

3. Early Share Trading

12. National Archives in The Hague, Archive of the VOC (Dutch East India Company), inv. no. 7065, fo. 90; inv. no. 7066, fo. 193.

3. Early Share Trading 1. De Velaer to l’Empereur, December 10, 1608, Bibliotheca Thysiana (hereafter BT), Thysius Archive (hereafter TA), inv. no. 215, no. A2/5. 2. De Velaer to l’Empereur, December 20, 1608, BT, TA, inv. no. 215, no. A2/6. 3. De Velaer to l’Empereur, January 7, 1609, BT, TA, inv. no. 215, no. A2/7. 4. L’Empereur to de Velaer, between January 9 and 12, 1609, BT, TA, inv. no. 265. 5. National Archives in The Hague (hereafter NA), Archive of the VOC (Dutch East India Company, hereafter VOC), inv. no. 7066. 6. De Velaer to l’Empereur, January 13, 1609, BT, TA, inv. no. 215, no. A2/9. 7. De Velaer to l’Empereur, June 16, 1609, BT, TA, inv. no. 215, no. A3/6. 8. De Velaer to l’Empereur, May 14, 1602, BT, TA, inv. no. 215, no. A1/4. 9. Jonathan I. Israel, The Dutch Republic: Its Rise, Greatness, and Fall, 1477–1806 (Oxford, 1995), 401–405. 10. De Velaer to l’Empereur, February 28 and March 11, 1609, BT, TA, inv. no. 215, nos. A2/13 and A2/14. 11. De Velaer to l’Empereur, May 25, 1610, BT, TA, inv. no. 215, no. B1/7. 12. De Velaer to l’Empereur, June 15, 1610, BT, TA, inv. no. 215, no. B1/8. 13. De Velaer to l’Empereur, July 26, 1610, BT, TA, inv. no. 215, no. B1/10. 14. De Velaer to l’Empereur, May 9, 1611, BT, TA, inv. no. 215, no. B2/5. 15. De Velaer to l’Empereur, March 19, 1610, BT, TA, inv. no. 215, no. B1/5. 16. De Velaer to l’Empereur, March 24, 1610, BT, TA, inv. no. 215, no. B1/6. 17. De Velaer to l’Empereur, September 30, 1610, BT, TA, inv. no. 215, no. B1/9. 18. Writ dated December 16, 1613. In J. G. van Dillen, Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (The Hague, 1958), 100–102. 261

4. Angry Shareholders

4. Angry Shareholders 1. Petition, March 1613, published in J. G. van Dillen, “Isaac le Maire en de handel in actiën der Oost-Indische Compagnie,” Economisch Historisch jaarboek 16 (1930): 1–165, doc. no. 82. 2. Johannes le Maire to Isaac le Maire, August 17, 1613, in van Dillen, “Isaac le Maire,” doc. no. 83. 3. Van Dillen, “Isaac le Maire,” 3. 4. Bibliotheca Thysiana (hereafter BT), Thysius Archive (hereafter TA), inv. no. 119g, fo. 224. 5. National Archives in The Hague (hereafter NA), Hof van Holland (hereinafter HvH), inv. no. 632, nos. 1614–1650, 1614–1673, 1614– 1676. 6. De Velaer to l’Empereur, December 10, 1608, BT, TA, inv. no. 215, no. a2/5. 7. See, for example, A. T. van Deursen, Rust niet voordat gy ze van buiten kunt: de Tien Geboden in de 17e eeuw (Kampen, 2004), esp. the chapter about the eighth commandment. 8. Petition, 1609, in van Dillen, “Isaac le Maire,” doc. no. 2. 9. Petition, 1609, in van Dillen, “Isaac le Maire,” doc. no. 3. 10. See Oscar Gelderblom, Abe de Jong, and Joost Jonker, “An Admiralty for Asia. Isaac le Maire and Conflicting Conceptions About the Corporate Governance of the VOC,” in The Origins of Shareholder Advocacy, ed. Jonathan G. S. Koppell (Basingstoke, 2011), 29–60. 11. Statement, August 1609, in van Dillen, “Isaac le Maire,” doc. no. 4. 12. Petition, 19 January 1610, in van Dillen, “Isaac le Maire,” doc. no. 9. 13. Bill of February 27, 1610, in van Dillen, “Isaac le Maire,” doc. no. 14. Also in Cornelis Cau et al., Groot placaet-boeck, vervattende de placaten, ordonnantien ende edicten van de . . . Staten Generael der Vereenighde Nederlanden, ende van de . . . Staten van Hollandt en West-Vrieslandt i (The Hague, 1658), 554–555. See also M. F. J. Smith, Tijd-affaires in effecten aan de Amsterdamsche beurs (The Hague, 1919), 57–58. 14. Notarial writs, van Dillen, “Isaac le Maire,” doc. no. 75–78. 15. Writ, December 16, 1613, in J. G. van Dillen, Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (The Hague, 1958), 100–102. 16. The shareholders’ protest around the year 1622 is treated at length in Paul Frentrop, A History of Corporate Governance, 1602–2002 (Brussels, 2003). Henk den Heijer, De geoctrooieerde compagnie: de voc en de wic als voorlopers van de naamloze vennootschap (Deventer, 2005). Matthijs de 262

5. Fraud

Jongh, “De ontwikkeling van zeggenschapsrechten van aandeelhouders in de 17e en 18e eeuw,” Working Paper (2009). 17. P. C. Molhuysen and P. J. Blok, eds., Nieuw Nederlandsch biografisch woordenboek ii (Leiden, 1912), 917–918. 18. Simon van Middelgeest, Nootwendich discours oft vertooch aan de hooch-mogende heeren staten generaal van de participanten der OostIndische Compagnie tegens bewinthebbers (s.l. 1622), Knuttel no. 3348. Simon van Middelgeest, Tweede noot-wendiger discovrs ofte vertooch aan alle lantlievende, van de participanten der Oost-Indische Compagnie, tegens bewinthebbers: In ‘t jaar een-en twintich, der onghedane rekeninge (s.l. 1622), Knuttel no. 3350. 19. Pieter van Dam, Beschryvinge van de Oostindische Compagnie 1A (1701), ed. F .W. Stapel (The Hague, 1927), 291–292.

5. Fraud 1. Maerten de Meijere v. Dirck Semeij, National Archives in The Hague (hereafter NA), Supreme Court of Holland (Hof van Holland, hereinafter referred to as HvH), inv. no. 632, no. 1614–1650. 2. Clé Lesger, Huur en conjunctuur: de woningmarkt in Amsterdam, 1550–1850 (Amsterdam, 1986), 133. 3. Pieter van Dam, Beschryvinge van de Oostindische Compagnie 1A (1701), ed. F .W. Stapel (The Hague, 1927), 149–155. 4. Writs, October 7 and 18, 1610, in J. G. van Dillen, “Isaac le Maire en de handel in actiën der Oost-Indische Compagnie,” Economisch Historisch jaarboek 16 (1930): 1–165, doc. no. 58. 5. Quotation, October 10, 1610, in van Dillen, “Le Maire,” doc. no. 60. 6. Around 1610, the annual rent of an average home in Oude Turfmarkt was some one hundred and ten guilders. Lesger, Huur en conjunctuur, 161. 7. Abraham Abelijn v. Pieter Overlander, NA, HvH, inv. no. 632, no. 1614–1650; and NA, Supreme Court of the Republic (Hoge Raad, hereinafter referred to as HR), inv. no. 708, July 30, 1616. Dirck Semeij v. Abraham Abelijn, NA, HvH, inv. no. 632, nr. 1614–1673; and NA, HR, inv. no. 708, July 30, 1616. Maerten de Meijere v. Dirck Semeij, NA, HvH, inv. no. 632, no. 1614–1676; and NA, HR, inv. no. 708, July 30, 1616. 8. For the prices paid for houses on Herengracht, see H. de la Fontaine Verwey, et al., eds., Vier eeuwen Herengracht: geveltekeningen van alle huizen aan de gracht, twee historische overzichten en de beschrijving van elk pand met zijn eigenaars en bewoners (Amsterdam, 1976). 263

5. Fraud

9. Van Dam, Beschryvinge 1A, 144–5. 10. J. G. van Dillen, Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (The Hague, 1958). 11. Johan E. Elias, De Vroedschap van Amsterdam, 1578–1795 (Haarlem, 1903), i:286. 12. Directors of the Amsterdam Chamber of the VOC v. Abraham de Ligne et al., NA, HvH, inv. no. 640, no. 1616–192. Directors v. Tobias Geurts, idem, no. 1616–193. Reinier Pauw, burgomaster van Amsterdam, on behalf of the Directors of the Amsterdam Chamber of the VOC v. Abraham de Ligne et al., NA, HR, inv. no. 642, December 7, 1621. Reinier Pauw v. Tobias Geurts, idem. 13. 13 NA, VOC, inv. no. 7066, fo. 181. 14. Hugo de Groot, Inleidinge tot de Hollandsche rechts-geleerdheid (1631) ii Aantekeningen, ed. S. J. Fockema Andreae (Arnhem, 1939), 236. 15. Writ, June 12, 1610, in van Dillen, “Le Maire,” doc. no. 46. 16. Allert van Balck v. Jan Hendricksz Rotgans, NA, HR, inv. no. 715, December 22, 1622. 17. Severijn Haeck v. Andries Polster, NA, HvH, inv. no. 703, no. 163336-1. 18. Samuel Cotinho v. Vincent van Bronckhorst, 1689, NA, Collection of civil cases belonging to the archives of the Supreme Court of Holland, IIK98.

6. The First Boom 1. National Archives in The Hague (hereafter NA), Archive of the VOC (Dutch East India Company, hereafter VOC), inv. no. 7068, fo. 326. For the family relationships between Thomas Sprenckhuysen, Willem Seulijns, and Andries Rijckaert, see the Montias Database of Seventeenth-Century Dutch Art Inventories, http://research.frick.org/montias/home.php. 2. Philipp von Zesen, Beschreibung der Stadt Amsterdam: darinnen von derselben ersten Ursprunge bis auf gegenwärtige Zustand, ihr unterschiedlicher Anwachs, herliche Vorrechte (Amsterdam, 1664), 320. 3. Melchior Fokkens, Beschrijvinge der wijdt-vermaarde koop-stadt Amstelredam, van hare eerste beginselen, oude voor-rechten, en verscheyde vergrootingen (Amsterdam, 1662), 172. 4. M. F. J. Smith, Tijd-affaires in effecten aan de Amsterdamsche beurs (The Hague, 1919), 20.

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5. J. G. van Dillen, Bronnen tot de geschiedenis van het bedrijfsleven en het gildewezen van Amsterdam ii (The Hague, 1933), nos. 114 and 570. Clé Lesger, Handel in Amsterdam ten tijde van de Opstand: kooplieden, commerciële expansie en verandering in de ruimtelijke economie van de Nederlanden ca. 1550–ca. 1630 (Hilversum, 2001), 219. 6. A. I. Bosma, Repertorium van notarissen residerende in Amsterdam, Amstelland, ambachtsheerlijkheden en geannexeerde gemeenten (Amsterdam, 1998). 7. H. de la Fontaine Verwey, et al., eds., Vier eeuwen Herengracht: geveltekeningen van alle huizen aan de gracht, twee historische overzichten en de beschrijving van elk pand met zijn eigenaars en bewoners (Amsterdam, 1976), 217. 8. NA, VOC, inv. nos. 7066, 7068. 9. For the Company’s intra-Asian network, see Robert Parthesius, Dutch Ships in Tropical Waters: The Development of the Dutch East India Company (VOC) Shipping Network in Asia 1595–1660 (Amsterdam, 2010). 10. Jan de Vries and Ad van der Woude, The First Modern Economy: Success, Failure, and Perseverance of the Dutch Economy, 1500–1815 (Cambridge, 1997), table 10.5. De Vries and van der Woude had to make assumptions in order to produce these figures. Until the period after 1640, such of the Company’s bookkeeping that has survived is not good enough to be able to reconstruct the Company’s annual accounts with confidence. See J. P. de Korte, De jaarlijkse financiële verantwoording in de voc, Verenigde Oostindische Compagnie (Leiden, 1984). 11. NA, VOC, inv. nos. 7066, 7068. 12. J. G. van Dillen, Van rijkdom en regenten: handboek tot de economische en sociale geschiedenis van Nederland tijdens de Republiek (The Hague, 1970), 650. 13. For lotteries, see Anneke Huisman and Johan Koppenol, Daer compt de lotery met trommels en trompetten! Loterijen in de Nederlanden tot 1726 (Hilversum, 1991). Also of interest in regard to this subject is Simon Schama, The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age (New York, 1987). 14. What follows is largely based on Anne Goldgar, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (Chicago, 2007). 15. Mike Dash, Tulipomania: The Story of the World’s Most Coveted Flower and the Extraordinary Passions It Aroused (London, 1999). 16. Peter M. Garber, Famous First Bubbles: The Fundamentals of Early Manias (Cambridge, Mass., 2000). 17. NA, VOC, inv. no. 7068.

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7. Jewish Traders 1. Amsterdam City Archives (Stadsarchief Amsterdam, hereinafter referred to as SAA), Archives of the notaries with practice location in Amsterdam (hereinafter referred to as Notaries), inv. no. 2238, fo. 5, 161. 2. Daniel Swetschinski, Reluctant Cosmopolitans: The Portuguese Jews of Seventeenth-Century Amsterdam (London, 2000), 208. 3. A Description of Holland, with Some Necessary Directions for Such as Intend to Travel Through the Province of Holland (London, 1691), 40. Quoted in Jonathan I. Israel, “Jews and the Stock Exchange: The Amsterdam Financial Crash of 1688,” in Diasporas Within a Diaspora: Jews, CryptoJews, and the World Maritime Empires (1540–1740), ed. J. I. Israel (Leiden, 2002), 449–487, esp. 454. 4. J. G. van Dillen, Het oudste aandeelhoudersregister van de Kamer Amsterdam der Oost-Indische Compagnie (The Hague, 1958), 57. 5. J. G. van Dillen, “De economische positie en betekenis der joden in de Republiek en in de Nederlandse koloniale wereld,” in Geschiedenis der joden in Nederland, ed. H. Brugmans and A. Frank (Amsterdam, 1940), 561–616, esp. 564. 6. Archive of the VOC (Dutch East India Company, hereafter VOC), inv. no. 7068. Swetschinski, Reluctant Cosmopolitans, 109. 7. H. de la Fontaine Verwey, et al., eds., Vier eeuwen Herengracht: geveltekeningen van alle huizen aan de gracht, twee historische overzichten en de beschrijving van elk pand met zijn eigenaars en bewoners (Amsterdam, 1976), 324–326. 8. Van Dillen, “De economische positie,” 564. The total number of Portuguese Jews residing in Amsterdam in around 1685 has been established at 4,500. This is just over 2 percent of a population of something like 200,000. See Hubert P. H. Nusteling, ‘The Jews in the Republic of the United Provinces: Origin, Numbers, and Dispersion,” in Dutch Jewry: Its History and Secular Culture (1500–2000), ed. Jonathan Israel and Reinier Salverda (Leiden, 2002), 51–52. 9. Johannes Cloppenburch, Christelijcke onderwijsinge van woecker, interessen, coop van renten, ende allerleye winsten met gelt (Amsterdam, 1637), 20–21. Hugo de Groot, Inleidinge tot de Hollandsche rechts-geleerdheid (1631) i, ed. S. J. Fockema Andreae (Arnhem, 1939), vol. III, part 10, §10, 140–142. 10. Penso de la Vega, Confusión, 28. See note 2 in chapter 1, above. 11. Cornelis Cau et al., Groot placaet-boeck, vervattende de placaten, ordonnantien ende edicten van de . . . Staten Generael der Vereenighde 266

8. Information

Nederlanden, ende van de . . . Staten van Hollandt en West-Vrieslandt iii (The Hague, 1683), 1054–1085; Cornelis Cau et al., Groot placaet-boeck, vervattende de placaten, ordonnantien ende edicten van de . . . Staten Generael der Vereenighde Nederlanden, ende van de . . . Staten van Hollandt en West-Vrieslandt iv (The Hague, 1705), 921–922. R. Liesker and W. Fritschy, Gewestelijke financiën ten tijde van de Republiek der Verenigde Nederlanden iv Holland (1572–1795) (The Hague, 2004), 224, 367. 12. A Description of Holland, quoted in Israel, “Jews and the Stock Exchange,” 454. 13. Hermannus Noordkerk, ed., Handvesten; ofte Privilegien ende octroyen: mitsgaders willekeuren, costuimen, ordonnantien en handelingen der stad Amstelredam: . . . tot den eersten Febr. 1747 vervolgt. met verscheide stukken verm., mitsgaders in eene andere schikking gebragt / en met de nodige registers voorzien ii (Amsterdam, 1748), 1063. 14. De Velaer to l’Empereur, June 16, 1609, Bibliotheca Thysiana (hereafter BT), Thysius Archive (hereafter TA), inv. no. 215, no. a3/6. BT, TA, inv. no. 112, no. c2. J. G. van Dillen, “Isaac le Maire en de handel in actiën der Oost-Indische Compagnie,” Economisch Historisch jaarboek 16 (1930): 1–165, doc. no. 6. SAA, Notaries, inv. no. 117, fo. 81. The names of the brokers referred to were Isaac Florianus, Melchior van Dortmont, and Balthasar Geerardtsz. 15. Resolution, May 1612, in Swetschinski, Reluctant Cosmopolitans, 143. 16. Noordkerk, Handvesten ii, 1063. 17. This notebook is in SAA, Archive of Jeronimus Velters, inv. no. 4. 18. These dealing slips are to be found primarily in SAA, Archive of the Portuguese-Jewish Community in Amsterdam, inv. no. 685a–b. 19. Israel, “Jews and the Stock Exchange,” 455.

8. Information 1. Velters to Holla, March 14, 1688, Amsterdam City Archives (Stadsarchief Amsterdam, hereinafter referred to as SAA), Archive of Jeronimus Velters (hereinafter referred to as Velters), inv. no. 4, fo. 78. 2. Velters to Holla, November 28, 1687, SAA, Velters, inv. no. 4, fo. 66. 3. Velters to Holla, February 24, 1688, SAA, Velters, inv. no. 4, fo. 74. 4. Velters to Holla, February 29, March 14 and 18, 1688, SAA, Velters, inv. no. 4, fo. 76–79. 5. Velters to Holla, August 11, 1689, SAA, Velters, inv. no. 4, fo. 120. 267

8. Information

6. Penso de la Vega, Confusion, 9. See note 2 in chapter 1, above. 7. Velters to Balthasar Cosett, December 20 and 30, 1687, SAA, Velters, inv. no. 4, fo. 69–70. 8. Dias Henriques to Levy Duarte, February 17, 1698, SAA, Archive of the Portuguese-Jewish Community in Amsterdam (hereinafter referred to as PJC), inv. no. 681b, p. 109. 9. Pieter van Dam, Beschryvinge van de Oostindische Compagnie 1A (1701), ed. F .W. Stapel (The Hague, 1927), 441. 10. Korte aenwysinghe der Bewinthebbers Regieringe (s.l. 1622), Knuttel no. 3353, 4. 11. Note in Velters’s letter book, July 24, 1694: SAA, Velters, inv. no. 4, fo. 331. 12. Oscar Gelderblom and Joost Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612,” Journal of Economic History 64 (2004): 658. René T. Willemsen, “Beleggers in een nieuwe compagnie. Het aandeelhoudersregister van de Kamer Enkhuizen der voc,” in Souffrir pour parvenir. De wereld van Jan Huygen van Linschoten, ed. Roelof van Gelder, Jan Parmentier, and Vibeke Roeper (Haarlem, 1998), 65–79, esp. 76–79. 13. Manuel Mendes Flores contra Johan de Hertoghe, National Archives in The Hague (hereafter NA), Hof van Holland (hereinafter HvH), inv. no. 857, no. 1695–58. 14. Fletcher’s bankruptcy is reported in an announcement by the Middelburg Desolate Boedelskamer (the body responsible for administering insolvent estates), Amsterdamsche donderdaegse courant, no. 1709–128, SAA, PJC, inv. no. 685a. For the Macaré family, see A. C. Macaré, “Macaré,” Kronieken 2 (1993): 57–92. 15. Velters to Macaré, September 25, 1676, SAA, Velters, inv. no. 2, fo. 514. 16. Velters to Fletcher, August 6, 1675, SAA, Velters, inv. n2, fo. 57. 17. Penso de la Vega, Confusion, 9. 18. Velters to Macaré Senior, August 31, 1677, SAA, Velters, inv. no. 3, fo. 262. 19. Velters to Semach Ferro 4, fo. 155. 20. SAA, Notaries, inv. nos. 4131–4135. 21. Dias Henriques to Levy Duarte, November 22, 1691, SAA, PJC, inv. no. 677, pp. 883–885. 22. Dias Henriques to Levy Duarte, July 31, 1697, SAA, PJC, inv. no. 681a, pp. 643–645. 23. Velters to Holla, August 28, 1688, SAA, Velters, inv. no. 4, fo. 89. 24. Dias Henriques to Levy Duarte, September 22 and 27, 1697, SAA, PJC, inv. no. 681a, pp. 432, 440–441. 268

9. Trading Clubs

25. Velters to Boreel, September 3, 1688, SAA, Velters, inv. no. 4, fo. 108. Velters did not mention Alvares’s first name; it could have been Rodrigo Alvares Pinto or Isaac Alvares. 26. Velters to Holla, July 25, 1687, SAA, Velters, inv. no. 4, fo. 59. 27. Ordinaris Dingsdaeghsche Courant, September 27, 1667 (no. 39), Persmuseum Amsterdam, microfilm sp119/86. 28. Penso de la Vega, Confusion, 5.

9. Trading Clubs 1. Sebastiaen da Cunha v. Michiel Rodrigues Mendes et al. (May 27, 1667), National Archives in The Hague (hereafter NA), Hof van Holland (hereinafter HvH), inv. no. 784, no. 1667- 60. 2. Amsterdam City Archives (Stadsarchief Amsterdam, hereinafter referred to as SAA), Archive of the Portuguese-Jewish Community in Amsterdam (hereinafter referred to as PJC), inv. nos. 687–688. 3. NA, Archive of the VOC (Dutch East India Company, hereafter VOC), inv. no. 7072, fo. 383. 4. Penso de la Vega, Confusion, 7. See note 2 in chapter 1, above. 5. Anne Goldgar, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (Chicago, 2007), 191–192. 6. Attestation Samuel Pereira, October 25, 1672, SAA, Archives of the notaries with practice location in Amsterdam (hereinafter referred to as Notaries), inv. no. 2240, p. 400. Antonio Alvares Machado versus Engelbert de Geyselaar, NA, HvH, inv. no. 816, no. 1681-55. Jaap Verseput from the Amsterdam City Archives helped me find the location of this tavern. 7. Penso de la Vega, Confusión, 97. A Description of Holland, with Some Necessary Directions for Such as Intend to Travel Through the Province of Holland (London, 1691); quoted in Jonathan I. Israel, “Jews and the Stock Exchange: The Amsterdam Financial Crash of 1688,” in Diasporas Within a Diaspora: Jews, Crypto-Jews, and the World Maritime Empires (1540–1740), ed. J. I. Israel (Leiden, 2002), 454. 8. SAA, PJC, inv. nos. 687–688. Presence of Velters: Velters to Buijsero, February 26, 1672, SAA, Archive of Jeronimus Velters (hereinafter referred to as Velters), inv. no. 1, fo. 252. Presence of Pollius: Antonio Alvares Machado v. Engelbert de Geyselaar (guardian of the minor children left by Hubertus Pollius), NA, HvH, inv. no. 816, no. 1681-55. 9. Dias Henriques to Levy Duarte, November 1, 1691, SAA, PJC, inv. no. 677, pp. 897–898. 269

9. Trading Clubs

10. F. S. Gaastra, “Coenraad van Beuningen en de beurscrash van 1688,” in In het verleden behaalde resultaten. Bijdragen tot de Nederlandse beleggingsgeschiedenis, ed. H. W. van den Doel and G. van Boom (Amsterdam, 2002), 77–101, esp. 83. 11. Attestation Hendrick van Meijert, July 11, 1659, SAA, Notaries, inv. no. 2207, p. 95. 12. SAA, PJC, inv. no. 858, fo. 89, 214. 13. SAA, Notaries, inv. no. 6004, fo. 361, 383. 14. SAA, Archive of the Deutz family (hereinafter referred to as Deutz), inv. nos. 275–276. 15. SAA, Deutz, inv. no. 285–288, 293–295. SAA, Collection of merchants’ account books (hereinafter referred to as Merchants’ Books), inv. no. 50. SAA, PJC, inv. no. 858. 16. Edict, June 3, 1623, Cornelis Cau et al., Groot placaet-boeck, vervattende de placaten, ordonnantien ende edicten van de . . . Staten Generael der Vereenighde Nederlanden, ende van de . . . Staten van Hollandt en WestVrieslandt (The Hague, 1658), I, 555–559. 17. Writs, February 5 and 17, 1672, SAA, Notaries, inv. no. 2238, fo. 276–277, 367.

10. Speculation 1. J. G. van Dillen, “De economische positie en betekenis der joden in de Republiek en in de Nederlandse koloniale wereld,” in Geschiedenis der joden in Nederland, ed. H. Brugmans and A. Frank (Amsterdam, 1940), 584–585. D. J. Roorda, “De joodse entourage van de Koning-Stadhouder,” Spiegel Historiael 14 (1979): 258–266. 2. Antonio Alvares Machado v. Engelbert de Geyselaar (guardian of the minor children left by Hubertus Pollius), National Archives in The Hague, Hof van Holland, inv. no. 816, no. 1681-55. 3. Writ, August 1, 1672, Amsterdam City Archives (Stadsarchief Amsterdam, hereinafter referred to as SAA), Archives of the notaries with practice location in Amsterdam (hereinafter referred to as Notaries), inv. no. 2239, fo. 968. 4. Writs, August 1, 1672, SAA, Notaries, inv. no. 2239, p. 962, 968, 989. 5. Oscar Gelderblom and Joost Jonker, “Amsterdam as the Cradle of Modern Futures and Options Trading, 1550–1650,” in The Origins of Value: The Financial Innovations That Created Modern Capital Markets, ed. William N. Goetzmann and K. Geert Rouwenhorst (Oxford, 2005), 189–205, esp. 197. 270

11. Crisis

6. Journal entry, January 16, 1660, SAA, Collection of merchants’ account books, inv. no. 50. 7. Gelderblom and Jonker, “Amsterdam as the Cradle,” 205. M. F. J. Smith, Tijd-affaires in effecten aan de Amsterdamsche beurs (The Hague, 1919), 82. 8. Kees Zandvliet et al., De 250 rijksten van de Gouden Eeuw: kapitaal, macht, familie en levensstijl (Amsterdam, 2006). 9. SAA, Archive of the Deutz family, inv. no. 286. 10. Larry Neal, “Reflections from the Mirror of Folly: The Adventures of Lord Londonderry in the Stock Markets of Paris, Amsterdam, and London in the Bubbles of 1719–1720,” Working Paper (2010), 12. SAA, Notaries, inv. nos. 10600–5. (Peter Koudijs told me about these contracts.) 11. Velters to Macaré, October 21, 1676, SAA, Archive of Jeronimus Velters, inv. no. 2.

11. Crisis 1. Writ, May 18, 1672, Amsterdam City Archives (Stadsarchief Amsterdam, hereinafter referred to as SAA), Archives of the notaries with practice location in Amsterdam (hereinafter referred to as Notaries), inv. no. 2239, fo. 183. 2. Writ, May 19, 1672, SAA, Notaries, inv. no. 2239, fo. 199. 3. For data about the VOC’s flotillas, see J. R. Bruijn, F. S. Gaastra, and I. Schöffer, Dutch-Asiatic Shipping in the Seventeenth and Eighteenth Centuries II and III (The Hague, 1979). This information can also be found on the internet at http://www.historici.nl/Onderzoek/Projecten/DAS. 4. Velters to Fletcher, October 30, 1671, SAA, Archive of Jeronimus Velters (hereinafter referred to as Velters), inv. no. 1, fo. 237. 5. Velters to Fletcher, December 15, 1671, SAA, Velters, inv. no. 1, fo. 242. 6. Velters to Fletcher, February 26, March 29. and April 5, 1672, SAA, Velters, inv. no. 1, fo. 252, 258–9. SAA, Archive of the Deutz family, inv. no. 293, fo. 86. 7. Deed of transfer, June 28, 1672, SAA, Notaries, inv. no. 4074, fo. 485–487. 8. Writ, July 1, 1672, SAA, Notaries, inv. no. 2239. 9. Velters to Fletcher, November 29, 1672, SAA, Velters, inv. no. 1, fo. 292. 10. This is the central thesis put forward by Anne Goldgar, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (Chicago, 2007). See 248 for van Goyen. 271

11. Crisis

11. F. S. Gaastra, “Coenraad van Beuningen en de beurscrash van 1688,” in In het verleden behaalde resultaten. Bijdragen tot de Nederlandse beleggingsgeschiedenis, ed. H. W. van den Doel and G. van Boom (Amsterdam, 2002). F. S. Gaastra, Bewind en beleid bij de VOC: de financiele en commerciele politiek van de bewindhebbers, 1672–1702 (Zutphen, 1989). SAA, Notaries, inv. no. 4135, fo. 790, 798; inv. no. 4136, fo. 51, 68, 445. 12. Petra Dreiskamper, “Aan de vooravond van de overtocht naar Engeland: een onderzoek naar de verhouding tussen Willem iii en Amsterdam in de Staten van Holland, 1685–1688,” Utrechtse historische cahiers 17, no. 4 (1996): 60. 13. Ibid., 61. 14. Velters to Boreel, August 24, 1688, SAA, Velters, inv. no. 4, fo. 87. 15. Velters to Boreel, August 31, 1688, SAA, Velters, inv. no. 4, fo. 89. 16. Velters to Holla, August 28, 1688, SAA, Velters, inv. no. 4, fo. 89. 17. Jonathan I. Israel, “Jews and the Stock Exchange: The Amsterdam Financial Crash of 1688,” in Diasporas Within a Diaspora: Jews, CryptoJews, and the World Maritime Empires (1540–1740), ed. J. I. Israel (Leiden, 2002), 449–487. 18. Penso de la Vega, Confusion, 40. See note 2 in chapter 1, above. 19. Ibid., 41. 20. Israel, “The Amsterdam financial crash,” 474–476. 21. Dreiskamper, “Aan de vooravond,” 61. 22. F. J. G. ten Raa, Het Staatsche leger, 1568–1795 VI Van de verheffing van Prins Willem III van Oranje tot Kapitein- en Admiraal-generaal der Vereenigde Nederlanden tot het begin van den Negenjarigen Oorlog (1672– 1688) (The Hague, 1940), 118–119. Dreiskamper, “Aan de vooravond,” 65–67. 23. Penso de la Vega, Confusion, 41. 24. Gaastra, “Coenraad van Beuningen,” 96. 25. Writs, October 29, 1688, SAA, Notaries, inv. no. 4135, fo. 790, 798; writs November 5 and 8, December 16, 1688, inv. no. 4136, fo. 51, 68, 445. 26. Israel, “The Amsterdam financial crash,” 480–481. 27. Writs, November 9, 22, 26 and 29, December 1 and 2, 1688, SAA, Notaries, inv. no. 4136, fo. 91, 262, 311, 325, 353, 363. 28. H. de la Fontaine Verwey, et al., eds., Vier eeuwen Herengracht: geveltekeningen van alle huizen aan de gracht, twee historische overzichten en de beschrijving van elk pand met zijn eigenaars en bewoners (Amsterdam, 1976), 386. 29. Geert Mak, Amsterdam: A Brief Life of the City (London, 1999), 162–166. Gaastra, “Coenraad van Beuningen,” 97. SAA, Notaries, inv. nos. 4131–6. 272

Epilogue

12. The World-Famous Book Again 1. Penso de la Vega, Confusión, 141. See chapter 1, note 2. 2. Smith, “Inleiding,” 26–27, in ibid. José Luís Cardoso, “Confusion de confusiones: ethics and options on seventeenth-century stock exchange markets,” Financial History Review 9 (2002): 109–123. 3. Penso de la Vega, Confusion, 5. 4. Ibid., 17. 5. Ibid., 17. 6. Penso de la Vega, Confusión, 77–78. 7. Ibid., 79. 8. Ibid., xxix. 9. See also Jonathan I. Israel, “Een merkwaardig literair werk en de Amsterdamse effectenmarkt in 1688. Joseph Penso de la Vega’s Confusion de confusiones,” De zeventiende eeuw 6 (1990): 159–165. 10. Penso de la Vega, Confusión, 273. 11. Velters to Boreel, August 31, 1688, Amsterdam City Archives, Archive of Jeronimus Velters, inv. no. 4, fo. 89. 12. Penso de la Vega, Confusion, 10. 13. Ibid.

Epilogue 1. Nicolaas Muys van Holy, Middelen en motiven om het kopen en verkopen van Oost- en West-Indische actien, die niet getransporteert werden, . . . te beswaren met een impost, ten behoeve van het gemeene land en de stad Amsterdam (Amsterdam, 1687), Knuttel no. 12622, 8. 2. Penso de la Vega, Confusión, 41. See chapter 1, note 2. 3. Henk den Heijer, De geschiedenis van de WIC (Zutphen, 1994). 4. Oscar Gelderblom, Abe de Jong, and Joost Jonker, “An Admiralty for Asia. Isaac le Maire and Conflicting Conceptions About the Corporate Governance of the VOC,” in The Origins of Shareholder Advocacy, ed. Jonathan G. S. Koppell (Basingstoke, 2011). 5. National Archives in The Hague, Archive of the VOC, inv. nos. 7070, 7072. 6. Anne L. Murphy, The Origins of English Financial Markets: Investment and Speculation Before the South Sea Bubble (Cambridge, 2009), chap. 1.

273

Glossary

Glossary

Bear: A dealer who speculates on a fall in price. Bear market: A market in which the share price is falling. A bear speculator, also known as a bear or short seller, speculates on a fall in the market. Bond: A written acknowledgement of debt. A VOC bond, for instance, was a piece of paper stating that the VOC was in debt to the owner of the bond. Boom or bull market: Share price rises. This term is also used to designate a period of rising prices. Broker: A middleman who mediated in transactions on the exchange. In seventeenth-century Amsterdam, brokers had to be members of the brokers’ guild. They received a commission set by the guild for every transaction in which they were involved. Officially brokers were not permitted to trade on their own account—they were only allowed to bring buyers and sellers together—but this rule was broken all the time. Bull: A bull speculates on the share price increasing. Call option: The holder of a call option has the right to buy a share at a preagreed price (strike price) on the option date. The buyer of the option pays a premium when he enters into the transaction (see option premium) in order to acquire this right. If the spot price of the share on the exercise date (the price that day on the market) is higher than the strike price, the option is said to be “in the money.” The holder will then exercise the option and the writer (seller) of the option must deliver the share. If the spot

275

Glossary

price equals the strike price, the option is said to be “at the money”; the owner can still exercise the option, but he will not make any profit on it. An option is “out of the money” if the spot price on the exercise date is lower than the strike price or exercise price. The option is then loss making, and the holder will let it lapse. Derivative: The collective name for “derived” financial transactions. Derivatives derive their value from the asset (usually a share, but it can also be oil, gold, or soya beans) to which they are linked. The derivatives that share traders dealt in in seventeenth-century Amsterdam were options and futures contracts. In the case of futures contracts, dealers agreed that they would trade in a share on a particular date in the future at a previously agreed-upon price (see also forward contract). Needless to say, the price was related to the price of the VOC share. A share was only handed over in the event of settlement, which is why futures contracts are regarded as “derived” transactions. Options also derived their value from the VOC share, since the option premium was based on the chance that a particular market fluctuation would occur. However, what was dealt in an option transaction was not the actual share but the right to buy or sell that share at a specific price on a specific date. Dividend: Profit share to shareholders. The VOC expressed its dividends as a percentage of the nominal value of the share capital. If the VOC announced a 10 percent dividend in cash, the owner of a share with a nominal value of 3,000 guilders could collect a sum of 300 guilders from East India House. The price at which a VOC share was trading on the exchange had no influence on the size of the payment the shareholder received. The VOC also regularly paid dividends in the form of spices or interest-bearing bonds. See also ex-dividend. Exchange agent: A dealer who trades for someone else’s account. Rodrigo Dias Henriques, who appears in this book a number of times, was an exchange agent. He received money from his clients (usually wealthy Portuguese Jews) to buy and sell shares on their behalf. In seventeenthcentury Amsterdam, exchange agents received a fixed fee per transaction. Ex-dividend: Nowadays shares are said to “go ex-dividend” on the day after it has been established which investors own a share and are thus entitled to the dividend. Investors who buy the share after it has gone exdividend are not entitled to the dividend and therefore pay a lower price for the share. The holders of VOC shares were free to choose when to go to East India House and collect the dividend they were due. For example, shortly after the dividend payment of April 1688 (33⅓ percent in cash) shares were in circulation on which a 1482.5 percent dividend had been paid since the foundation of the VOC in 1602 and shares on which 276

Glossary

“only” 1449 1/6 percent had been paid. The latter category consisted of shares whose owners had not yet been to East India House to collect their dividend. These shares still gave entitlement to a payment of 331⁄3 percent. The price these shares were trading at was therefore 331⁄3 points higher. All the share prices referred to in this book are ex-dividend. Forward contract: A contract in which the buyer undertakes to purchase a share from the seller at a preagreed price on a specified date. The seventeenth-century traders settled their forward contracts by transferring the share at the agreed price, by paying the difference on the settlement date between the forward price and the market price at that moment of the VOC share, or by canceling out the contract against a reverse contract (a trader who had bought a forward contract could, for instance, cancel it out against a similar contract he had sold). See also derivative. Haircut: The margin subtracted from the market value of an asset that is being used as collateral. The size of the haircut reflects the perceived risk associated with holding the asset. In the seventeenth century it was very rare for the full market value of a VOC share to be lent. Lenders applied a haircut to reduce the chance that the value of the share given as security would drop below the capital sum loaned as a result of a fall in the price. See also share collateral. Investment sentiment: The inclination of a dealer to buy or sell. Liquidity: The tradability of a share. If a share is liquid (in other words if there is a liquid market for it), it can easily be traded. In other words a dealer has little difficulty buying or selling a share. The liquidity of a share is also determined by the extent to which transactions influence the price. If, for instance, an order to sell a large number of shares brings the price down little, if at all, that share is very liquid. Market maker: A dealer who is always prepared to buy or sell shares. A market maker earns money because he buys shares for just under the market price and sells them for a price just above it. Market makers ensure it is always possible to trade in a share. In the seventeenth-century market for VOC shares they provided an important service to shareholders who wanted to sell shares for which there was little demand. The only shares that were widely bought and sold had a nominal value of 3,000 guilders (or a multiple thereof). Market makers ensured that shares with nonstandard nominal values could also be traded. Market value: The value of a VOC share on the stock exchange. A share with a nominal value of 3,000 guilders (at the baseline of 100 set in 1602) had a market value of 6,000 guilders at a share price of 200. Naked short selling: Naked short sellers sold shares they did not own. They undertook sales transactions while their account in the VOC’s books 277

Glossary

was empty. A dealer who shorted VOC shares had a negative position or was “short.” Naked sellers speculated on a fall in the market. Nominal value: The value of a VOC share as recorded in the capital accounts. See also market value. Notarial writ: A notice read aloud by a notary. If two parties disagreed about a transaction, it was normal for one party (the individual commissioning the writ) to advise the other party (the individual being served with the writ) through the notary of what he believed he was entitled to. In the seventeenth century, notarial writs were considered to be the first step in possible legal proceedings. Option: The right to buy or sell a share at a preagreed price (strike price). See call option, put option, straddle, and derivative. Option premium: The price that a dealer pays to acquire an option. An option premium can be compared to an insurance premium: a specific risk (price risk in the case of share options) is covered in exchange for payment of the premium. Put option: The holder of a put option has the right to sell a share at a predetermined price on the exercise date of the option. See also call option. Repo: A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. See share collateral for a detailed explanation. Share collateral: A lender would take a Dutch East India Company (VOC) share as security for a loan. The dealer then used that loan to pay for the share. Secured loans enabled dealers to take up VOC shares with a limited amount of their own money. In general the loan did not cover the full purchase price of the share; see haircut. Share price: The price of VOC shares was expressed as a ratio of the current value to the value of the share capital when the subscription register was closed in August 1602. The August 1602 share price was set at 100. A price of 125, for instance, meant that the value of VOC shares had risen 25 percent relative to their value in August 1602. See ex-dividend for the effect of dividend payments on the share price. Short selling: A trading technique in which a dealer sells borrowed shares. See also naked short selling. Spot price: Cash price. Straddle: A combination of a call option and a put option. Volatility: The instability of the share price. If the price fluctuates significantly, it is said to have high volatility.

278

Bibliography

Bibliography

Archives

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284

Index

Abelijn, Abraham, 109; forward contract of, 59, 82; lawsuit against Semeij, 84; letter of indemnity offer by, 83–84; refusal to replace fraudulent share, 83 Abenacar, Isaac, 148 Aberbanel Sousa, Salomon, 159 accreditation, of brokers, 181 Ackersloot, Cornelis, 55 active trading, in Middelburg chamber, 156 administration, of VOC, 21–27 Albeville, Marquis d’, 141–42 aldermen’s court, 93, 99, 187; van Balck case in, 92; forward contract ruling by, 95–96; on naked short selling, 203 Alexander VI (pope), 40 Alkmaar, 116–17 Allertsz tot Londen, Jan, 16, 17–18, 21, 32 Alteration of Amsterdam, 19, 31 Alvares, Luis, 173 Alvares Machado, Antonio, 165, 184–86 American options, 218

Amsterdam: Dutch Renaissance style in, 20; economic progress in 1640s, 115; exchange buildings in, 105; le Maire syndicate and, 51, 61, 69; map of, 29; Portuguese Jews and, 129, 133 Amsterdam chamber, of VOC, 9, 221; C. van Beuningen as director of, 212; Enkhuizen chamber compared to, 155; forward trading in, 179; le Maire syndicate and, 51, 61, 69; naked short selling of, 167; Rijckaert as director of, 101; share capital of, 12, 17, 27, 38, 86, 88, 125, 127, 164; share register of, 11, 18, 23, 25; Velters as director of, 154 Amsterdam City Archives, 21 Amsterdamsche Courant, 185 Amsterdam Stock Exchange Association, 182–83 annual fairs, international trade at, 173–74 Antwerp: exchange buildings in, 105; grain merchants in, 56; Jewish communities in, 132; siege of city, 37; on Spanish side, 37–38; trading house, 127

285

Index Athias, Jacob, 167, 171–72 Australian Company, 54, 55 Baccher, Philips de, 97 Balck, Allert van: aldermen’s court case, 92; Bouwer and, 90–94; notarial writ of, 92; Rotgans’s transaction with, 91–92; Supreme Court of the Republic appeal by, 92–93 ban: on naked short selling, 60–66, 80, 94–95, 167, 202–4; on selling fraudulent shares, 66; on trading in synagogue (1677), 124; on trading in synagogue courtyard (1702), 124 Banchem, Frederick van, 92 Bank of Amsterdam, 91–92, 93, 101; location of, 16, 107; Portuguese Jews’ accounts at, 126, 127, 129 bankruptcy, 92, 227 Bantam, 41, 62 Bartolotti van den Heuvel, Jacoba, 224 Bartolotti van den Heuvel, Jan Baptista, 224 Bast, Pieter, 19 Batavia (Jakarta), 112–13, 153 bear, 56, 67, 68, 78, 102, 275; Confusión de confusiones on, 221, 222 bear market, 275 Beecke, Louis del, 7 Beens, Hubertus, 171, 184–87 Belmonte, Manuel de, 158–59 Berlage Exchange, 103, 182–83 Berwijns, Bernart, 87 Beuningen, Coenraad van, 154, 213; as Amsterdam chamber director, 212; crash of 1688 and, 211–14, 224–27; Dutch Republic political situation and, 212–13; Lords Seventeen correspondence with, 212, 224; reneging by, 225–26; secured loans of, 225 Beuningen, Gerrit van, 165 Beursplein 5, 183 Bicker, Gerrit, 11 bid-ask spread, 103 Black, Fischer, 190 Black-Scholes model, 190

blank selling, 61 Bode, Matthijs, 212, 225 bond, 194, 275; States of Holland issuance of, 115, 153, 199 boom or bull market, 2, 100–121, 205, 243, 275. See also bull Boreel, Willem, 216, 217, 219, 233 Bouwer, Hans, 55, 109, 134, 233; van Balck and, 90–94; fleeing city by, 81; forward contract of, 59; fraud by, 77–99 Brabant Company, 10, 38 Brasser, Willem, 55 Brazil, 128–29 Breen, Anthony van, 7 brokerage ordinance (1647), 136 brokers, 103, 144, 154, 169, 275; accreditation of, 181; attempt to control leverage, 197; buying of shares, 4; commission of, 139, 191; Confusión de confusiones on, 231; dismissal of, 96–98; guild membership of, 136; Jewish traders as, 133–40; mediation by, 136; negotiation by, 96, 98–99, 124; orders processed through, 181, 183; de Velaer Jr. as, 35–37 Bronckhorst, Vincent van, 98, 212, 225 Bruyningh, Jan Fransz, 7, 8, 107–8; house of, 30; notarial writ by, 69, 80–81 bull, 221, 275. See also boom or bull market Bushuis city arsenal, 18, 20, 21, 28, 191; Company location in, 19; location of, 106; relocation of, 19 Buyck, Hendrick, 11 Caerden, Paulus van, 41 calendar accounts, 179, 181 call option, 194–96, 275–76 Capadoce, Abraham, 212, 225 Cape Horn, 55 Cape of Good Hope, 12, 54, 163 capital subscription, 9, 23–24, 26, 88, 109, 239; of Company of the Fourteen Ships, 53; of VOC, 12–13 Cardozo, Estevan, 125

286

Index Catholics, 31, 73, 129; power in England, 214–15; usury regulations and, 131 Central Station, 29, 30 charter: articles, of VOC, 14–15; request, VOC fifty year renewal of, 71; of States General, for VOC, 9, 10, 12, 13–14, 153 chief participants: VOC books inspection by, 75, 151; VOC shareholders as, 75 Christians, 125, 135–36, 138, 185; moneylending and, 130–31; as traders, 161 Coen, Jan Pietersz, 113 collateral loans: margins on, 177–78; for shares, 176–77. See also secured loans Collegie van de Actionisten Trading Club, 169–73, 197, 241; De Plaetse Royael meeting of, 171, 184; Velters and Beens attendance at, 171 Collegie van de Blommisten, 171 Cologne, Bishopric of: alliance with France, 218; Louis XIV pact with, 142 commission, 35, 37, 48, 77; of brokers, 139, 191 commodities merchants, 27–28 Company of the Fourteen Ships: capital subscription of, 53; le Maire, director of, 53–54 confidence, 66, 94, 141, 167, 208–11 Confusión de confusiones (de la Vega), 1–6, 50, 141, 228–35; on bear, 221, 222; on brokers, 231; on bull, 221; on certainty of war, 223; characters in, 3; on crash of 1688, 228–29, 233; motives for writing, 231; on options, 168, 191–92, 229–30; on rash decisions, 157–58; on rumors of war, 221–22; on share trading, 2, 3–4, 233; on trading clubs, 171; on trading techniques, 229–31; value to modern readers, 3, 234; versions and editions of, 2; on war, 132 contingent claims: drawbacks of, 188; forward contracts with, 187–88

Cornelis, Neeltgen, 8, 15, 16, 17, 33 Corver, Jan Jansz, 25 Corver, Joan, 165 Cosett, Balthasar, 150, 151 counterparties, 67, 169, 197, 198, 204; for forward contract, 200, 201; liability of, 119; Portuguese Jews as, 194; reneging by, 137, 170, 175, 191, 210 court cases: about fraudulent shares, 80–86; about incomplete payments, 86–87, 92; about naked short selling, 65, 96, 99, 165–67, 203, 204; about tulip bulb trading, 119–20, 211. See also aldermen’s court; lawsuits covered call, 195–96 Coymans, Elisabeth, 177–78, 192 crash of 1688: van Beuningen, C., and, 211–14, 224–27; Confusión de confusiones on, 228–29, 233; defaults during, 227; Velters and, 216, 233; VOC share price slump in, 211 crisis: C. van Beuningen and, 211–14, 224–27; of confidence, 208–11; crash of 1688, 211–14, 216–19, 224–27, 228–29, 233; Disaster Year, 178, 204–7; rumor mill, 219–24; William III, 214–16 Cruijsbergen, Frans van, 109; fraud victim, 79, 82–83 Cunha, Balthasar da, 207 Cunha, Sebastiaen da: counterparties to court, 204; honor of, 168–69; losses of, 165–66 Curiel, Mozes. See Nunes da Costa, Jeronimo Cuypers, Jos, 183 Damman, Jacques, 55 Dam Square, 87, 91, 100, 143–46, 217; economic infrastructure around, 107–8; share trade on, 164, 170, 201, 238 Delft chamber, of VOC, 9, 12, 155–56 De Plaetse Royael: Beens and Alvares Machado at, 184–87; Collegie van de Actionisten meeting at, 171, 184

287

Index derivatives, 276; leverage and, 196; London market trading in, 242; trading in, 238, 239 Deutz, Joseph, 193; call option of, 194–96; house of, 138; options use, 192, 194–95 Dias Henriques, Rodrigo, 151, 194; foreign contacts of, 159–60; information advantage of, 160; letters of, 159; share trading of, 162; on trading clubs, 172; unfulfilled forward contracts by, 208–9 directorships, of VOC: at East India House, 80–81; Geurts lawsuit against, 86–90; personal finance of existing shares, 88–89; share trading by, 63, 89, 110, 153, 240; share transfer procedure change, 89; three year terms for, 75 Disaster Year (1672), 178, 204–7 dividend, 32, 276; EIC, English payment of, 44; as information source, 151– 54; Lords Seventeen and, 23, 26, 49, 67, 143–46, 151, 152, 205; paid in spice, 44–50; payment in kind, 152; recording of, 26, 27; stabilization of, in 1644, 152; VOC first payment of, 46, 67; VOC policy of, 113; VOC reduction during and after war, 152. See also ex-dividend Downing, George, 206 Duarte, Raphael, 190, 202–3, 207 Dutch East India Company (VOC): administration of, 21–27; angry shareholders, 51–74; capital subscription of, 12–13; chambers of, 12–13, 155; charter articles, 14–15; dividend paid in spice, 44–50; dividend policy, 113; dividend reduction during and after war, 152; fifty year renewal of charter request, 71; first dividend payment, 46, 67; incorporation of, 9; ledgers of, 24, 25; liquidation of, 48–49, 68; le Maire as founder of, 51; le Maire vs., 53–56; military operations, 68–69, 74, 112; monopoly of, 10, 12; van Os as director of, 7–8;

pamphlet recommendations for, 74; petitions, 61–65; price hike, from 1633–1643, 111–16; profit sharing, 44; shareholders’ policy setting, 13; share register of, 11; States General charter for, 9, 10, 12, 13–14, 153; ten-year account of, 15, 23, 37, 38, 45. See also Amsterdam chamber; Delft chamber; Enkhuizen chamber; Hoorn chamber; Lords Seventeen; Middelburg chamber; Rotterdam chamber; VOC share price; VOC shares Dutch Republic: boom in, 243; economic boom of 1640s, 115; England and France war with, 157, 184–86, 206, 217–18; honor in, 168; Japan alliance with, 43; Portugal truce (1641) with, 128; share trading negative impact on, 238–39; Spain truce with, 39, 40; speculation and gambling in, 115–16; tax levy by, 132. See also Supreme Court of the Republic Dutch Revolt, 37–38, 133 Dutch zone, in Brazil, 128 East India Company (EIC), 70; dividend payment by, 44; short period investments in, 237 East India House, 18–21, 20, 46, 56, 57; dividend payment and, 152; de Keyser design of, 19; location of, 106, 107; trade in shares and, 27; VOC directors at, 80–81 Edict of Expulsion, 125 Egmond aan den Hoef, 81 Egmont, Maria van, 16, 18 EIC. See East India Company Elisa Abrabanel, Samuel de, 194 Empereur, Antoine l’, 35, 133–34, 141, 163–64; background of, 37–38; correspondence of, 37, 39, 41, 47– 48; initial share trading by, 35–37; as merchant, 38; share sale by, 50 England: Catholics’ power in, 214–15; war with Dutch Republic, 157, 184, 206, 217–18; William III’s invasion of, 178, 214–15, 220–24

288

Index Enkhuizen chamber, of VOC, 10, 12, 207; Amsterdam chamber compared to, 155; director investment figures in, 14, 110; share found in 2010, 21; share registers in, 9 European options, 218 Exchange. See Hendrick de Keyser Exchange exchange agent, 162, 173, 276 ex-dividend, 205, 215, 243, 276–77 Fagel, Gaspar, 217 Far East, information from, 41–44, 72, 150–51, 156 Farnese, Alexander, 37 Ferdinand II (king), 125 financial crisis, of 2008, 61; Lehman Brothers in, 178; short selling prohibition and, 66; trust and, 209 Financial Services Authority, UK, 66 Financial Times, 3 First Anglo-Dutch Naval War (1652), 169 Fletcher, Mark, 156–57, 159 fluctuations, in VOC share price, 169–70, 192, 196, 209, 223 Fokkens, Melchior, 105 Foreest, Cornelis van, 55; forward contract of, 57, 58, 67–68; fraud by, 79 forward contracts, 1, 56–60, 95–96, 97, 98–99, 277; on basis of honor and trust, 167–69, 209, 211; with contingent claims, 187–88; convenience of, 56; counterparties for, 200, 201; grain merchants use of, 56, 65; honor and, 167–69, 209, 211; for leverage, 196; of de Meijere and Bouwer, 59; obligation to register, 63; options compared to, 188–89; of Overlander and Abelijn, 59, 82; provisions of, 198; renunciation clause, 87, 96, 98; rescountering meetings for, 173–75; of Semeij and de Meijere, 59, 82; of Thijs and van Foreest, 57, 58, 67–68; trust and, 211; unfulfilled, by Dias Henriques, 208–9; VOC registration, 66, 179

forward trading, 95–96, 208; in Amsterdam chamber, of VOC, 179; of Athias and Levy Duarte, 167; le Maire syndicate plan of, 55–60; price fluctuations and, 169–70; private contracts for, 96; settlement, 59, 109, 173–75, 241; standard share value, 110; of tulip bulbs, 116–21 France: Bishopric of Cologne alliance with, 218; boom in, 243; war with, 157, 184–86, 206, 217–18 Francees, Josep, 189–91 Franco-Dutch War (1672–1678), 153, 157, 178, 184–86, 204–7 fraudulent shares: Abelijn refusal to replace, 83; ban on selling, 66; by Bouwer, 77–99, 79; court cases about, 80–86; van Cruijsbergen as victim of, 79, 82–83; by van Foreest, 79; Geurts as victim of, 79; by Rosecrans, 79; Rotgans and, 91 Frederick Henry, 5, 168 futures contracts. See forward contracts futures trading. See forward trading Gabay Henriques, David, 159 Gabay Henriques, Jacob, 140, 154, 158, 159 gambling: in Dutch Republic, 115–16; with leverage, 196–201 Geelvinck, Cornelis, 215 Geer, Jacques van de, 83 genuine buyer, Rotgans as, 90–94 genuine shares, 82–86; forward contract and, 99 Gerritsz, Steven, 55 Geurts, Tobias: as fraud victim, 79; lawsuit against VOC directors, 86–90 Glorious Revolution, 214 Golden Age, 114, 194, 239 Golden Bend, of Herengracht, 138, 139 Gomes Cotinho, Samuel, 158 Gonsales de Andrada, Luis, 128, 165 Gonsalves de Assevedo, Joseph, 194 Goyen, Jan van, 210 grain merchants: forward contract use by, 56, 65; trade of, 102

289

Index Groe, Dirck van der, 224 Grootenhuys, Jan ten, 216–17 Grotius, Hugo, 40, 88 guild membership: of brokers, 136; Jewish ratio in, 138–39; of Jewish traders, 130 Haarlem, 115–17, 119–20, 171, 206 Haeck, Severijn, 98, 204 Hague, The, 16, 38, 84, 89, 128, 165; information from, 144, 147–50, 160– 63, 219, 222; tax decisions at, 147 haircut, 225, 277 Hamburg, 39, 127, 132 Harmensz, Pieter, 21, 23 Haskin Stiles, Joseph, 225 Hasselaer, Pieter Dircksz, 7 Heemskerck, Coenraad van, 217 Heintje Hoekssteeg, 7 Helmer, Elbert Lucasz, 87 Hendrick de Keyser Exchange, 103–8, 145, 182, 232; building demolishment, 104; description of, 105, 107; hours of operation, 107 Henry IV (king), 54 Heren XVII. See Lords Seventeen Holla, Theodore, 144, 219; Les Paul information to, 149; political news access by, 147–48; Velters information to, 147–49, 159; Visscher information to, 148, 149 honor, 167–69, 177, 228; of agreements, 82, 117, 119; of Da Cunha, 168–69; in Dutch Republic, 168; of forward contracts, 167–69, 209, 211; of le Maire, 76; trading clubs and, 167–69. See also trust Hooft, Cornelis Pietersz, 105 Hooft, Hendrick Cornelisz, 195 Hoorn chamber, of VOC, 9, 10, 12, 23, 155; director investment figures in, 14, 110 Hove, François van, 87 Hudde, Johannes, 215, 224 incomplete payments, court cases about, 86–87, 92 Industrial Revolution, 244

inflation, 45 information: from abroad, 41–44, 132, 160; from dividend announcements, 151–54; from the Far East, 41–44, 72, 150–51, 156; from The Hague, 144, 147–50, 160–63, 219, 222; inadequate, in early share trading, 37–43; Jewish networks for, 132, 159–62; from Middelburg, 155–59; in newspaper, 149, 162–64; value of, 146–49; Velters and, 143–49, 150–51, 159; on VOC share price, 72, 149, 151–54, 160–61 information networks, 38–41, 112–13, 126, 219; of Jews, 132, 159–62 insider trading, 154, 221 interest, on repos, 200 international contacts, of Portuguese Jews, 132, 160 international trade, at annual fairs, 173–74 invalid contracts, 94–99 investment portfolio, leverage and, 196 investments: by directors, in VOC shares, 14, 110; EIC short period, 237; instruments, secured loans as, 178; by Lijntgens, 9, 32; long term, by shareholders, 192; reasons, for VOC shares, 32, 44, 50, 115, 121 investment sentiment, 56, 62, 201, 277 investors, installment payments by, 16–17 Isabella I (queen), 125 James II (king), 214 Jans, Dignum, 8, 15; subscription of, 34; VOC shares of, 17 Japan, 43, 156 Jewish clubs, 171 Jewish traders, 122–42; as brokers, 133–40; proportion of, 124–25; speculation of, 140–42 Jews: guild membership of, 130, 138– 39; information networks of, 132, 159–62; as moneylenders, 130–31; as new merchants, 123–29; as share dealers, 141–42 Joncheyn, Albert Symonsz, 87, 90

290

Index Kaerel, Jan Jansz, 11 Keyser, Hendrick de, East India House design by, 19 Keyser, Hendrick de, Exchange. See Hendrick de Keyser Exchange Kocx, Agneta, 23 Korte aenwysinghe der Bewinthebbers Regieringe pamphlet, 72, 154 Korte aenwysinghe van de kleyne profijten pamphlet, 72 Lampe, Barent, 7–8, 23–24, 36, 77–81 Lange Adriaens, Pieter de, 212, 225 lawsuits: of Geurts, against directorships of VOC, 86–90; by Haeck, 98; of le Maire, with VOC directors, 51–53; of Overlander, Abelijn, and Semeij, 83–84. See also court cases Lehman Brothers, Repo 105 transactions by, 178 Leiden, 35, 38, 115, 163 Le Maire Strait, 55 letter of indemnity, Abelijn offer of, 83–84 leverage: by van Beuningen, 226; brokers attempt to control, 197; derivatives and, 276; forward contracts for, 196; gambling with, 196–201; trading clubs and, 197 Levy Duarte, Manuel, 140, 151, 159, 171–72; as exchange agent, 162; forward trading of, 167 liability, of counterparties, 119 Ligne, Abraham de, 87, 88, 90 Lijntgens, Pieter: investments by, 9, 32; sales transactions recordings, 33; VOC shares of, 17; Warmoesstraat house on, 27 liquidation, of VOC, 48–49, 68 liquidity, 209, 277 Lock, Adriaen, notarial writ by, 122–23, 180, 191, 202, 204 Lock, Cornelis, 165 London: exchange buildings in, 105; stock market, 241–42, 244 Long-Distance Company, 9–10 Loot, Gerrit, 140, 144, 156 Lopes Carvalho, Manuel, 128

Lopes de Castro Gago, Antonio: on naked short selling ban, 202–4; reneging by, 207 Lopes Pinto, André, 127 Lopes Suasso, Antonio, 127 Lopes Suasso, Francisco, 162, 220 Lopes Villareal, Manuel, 165 Lords Seventeen (Heren XVII), of VOC, 12, 17, 23; annual meeting, 143; van Beuningen correspondence with, 212, 224; cash dividend decision by, 26, 49; dividend payment by, 23, 67; on dividend payment in kind, 152; dividend setting by, 143–46, 151; 1671 record dividend by, 205 Loten, Jan, 180 lotteries, 115–16 Louis XIV (king), 142, 180, 206–7, 214 Macaré, Pierre, 156, 158, 200 Machado, Mozes. See Alvares Machado, Antonio Maire, Isaac le, 7, 51–76, 134, 233; Australian Company founding by, 54; of Company of the Fourteen Ships, 53–54; death of, 76; Far East trade role, 43; forward trading, 56– 60; honor of, 76; investments by, 9; lawsuit with VOC directors, 51–53; syndicate forward trading plan, 55–60; VOC directors criticism by, 68–71; as VOC founder, 51; VOC shares and, 17, 55; VOC versus, 53–56 Maire, Johannes le, 52–53 le Maire syndicate: Amsterdam chamber and, 51, 61, 69; end of, 66–68; forward trading plan, 55–60; members of, 67; naked short selling of, 60–66; Rotgans as member of, 93–94; States of Holland and States General petitions by, 63–64; VOC share price and, 51, 55–69 Mancini, Olympe, 173 Mare liberum (Grotius), 40 margin accounts, 198–99 margins, on collateral loans, 177–78

291

Index Nassau-Siegen, John Maurice of (prince), 10, 128 Naval Wars with England, 165, 166, 169; share price influenced by, 178 negotiation, by brokers, 96, 98–99, 124 Netto de Paiva, Miguel, 207 New Brabant Company, 10 New Bridge, 27–31, 30, 35, 39; trade in shares at, 28–29 newspaper, information in, 149, 162–64 Nicquet, Jacques, 87 Nine Years’ War (1688–1697), 242 nominal value, 278 nonexistent shares. See fraudulent shares Nootwendich discours pamphlet, 73 notarial writs, 278; by Frederick van Banchem, 92; by Bruyningh, 69, 80–81; by van der Groe, 224; by A. Lock, 122–23, 180, 191, 202, 204; protest of 1613, 69 Nunes da Costa, Jeronimo, 127, 220; rumors of war by, 221–22

market makers, 277; Raphoen brothers as, 103, 108, 114, 121, 137; services of, 137; value of, 108–9 market value, 277 mediation, by brokers, 136 Medina, Joseph de, 148 Meijere, Maerten de, 55, 86, 109; court case of, 84–85; forward contract of, 59, 82 Meijert, Hendrick van, 176 Mendes da Silva, Isaack, 165 Mendes de Garvoijs, Gaspar, 207 Mendes Flores, Manuel, 122–23, 156, 159, 194, 203–4, 207; put option purchase of, 189–91 Merchant of Venice (Shakespeare), 130–31 merchants, 164; commodities, 27–28; grain, 56, 65, 102; Jewish traders as new, 123–29 Middelburg chamber, of VOC, 9–10, 200, 208; active trading in, 156; news from, 155–59; Velters information from, 156–58 Middelgeest, Simon van, 73 military operations, of VOC, 68; shareholders protest against, 69–71 Moens, Bernardinus, 179–80 money lending, by Portuguese Jews, 130–31 Money Never Sleeps movie, 235 Muelen, Sara van der, 38 Muijlman, Willem, 97 Munter, Cornelis, 144 Naiveu, Matthijs, 139 naked short selling, 277–78; ban on, 60– 66, 80, 94–95, 167, 204; court cases about, 65, 96, 99, 165–67, 203, 204; Frederick Henry prohibition of, 168–69; Lopes de Castro Gago on ban of, 202–4; of le Maire syndicate, 60–66; revival of, 95; States General on ban of, 65–66; Supreme Court of Holland ruling on, 203, 204; VOC petitions against, 61–62 Nassau, Maurice of (prince, stadholder), 10

Ocean’s Twelve movie, 21 Oldenbarnevelt, Johan van, 10, 40, 64, 83, 88 Old Long-Distance Company, 9–10 option premium, 190, 195, 278 options: American, 218; call, 194–96, 275–76; Deutz use of, 192, 194–95; European, 218; forward contracts compared to, 188–89; Portuguese Jews and, 192; purchase of, 168; put, 189–91, 278; risk and, 188–89; straddles, 190 options trading, 1, 5, 15, 56, 115, 278; Confusión de confusiones on, 168, 191–92, 229–30; late development of, 191; pricing models, 190; risk and, 188–89 Orange, Frederick Henry of (prince, stadholder). See Frederick Henry Orange, William III of (prince, stadholder). See William III Ordinaris Dingsdaeghsche Courant, 162–63 Orient, VOC authorization to negotiate with rulers in, 14

292

Index Os, Dirck van, 7, 13, 18 Osorio, Bento, 127 Oude Kerk, transactions at, 83 Overlander, Pieter, 109; forward contract by, 59, 82; lawsuit against Abelijn, 83–84 pamphlets, 112; shareholders, of VOC, use of, 71–76, 154 Pardicque, Francois, 212, 225, 227 Pas, Miguel de, 127 Pauw, Reinier, 7, 11, 87–88 Peace of Münster (1648), 129 peace treaty, at Nijmegen (1678), 184–86 Pellicorne, Hans, 83 Penso de la Vega, Joseph. See Vega, Joseph de la Penso Felix, Abraham, 144, 159 Pereira, Jacob, 122–23, 134 Pereira, Joseph, 122–23, 134 Pessoa, Isaac, 140, 144 Petit, Daniel, 224, 225 Philip II (king), 14 Pieterson, Catharina, 155–56 Pinto, David de, 158 Pinto, Elisabeth, 126 pledged loan market, 178 Pollius, Hubertus, 184, 186 Polster, Andries, 98, 204 Poppen, Jacob, 218 Poppen, Jan, 11, 86; death of, 89–90; Geurts consignment transaction and, 87 Portugal, 40; break from Spanish crown, in 1640, 128; Dutch Republic truce with (1641), 128; war with, 10 Portuguese Jews, 172, 233; Amsterdam and, 129, 133; arrival in Dutch Republic, 125–29; Bank of Amsterdam accounts of, 126, 127, 129; as counterparties, 194; forced exodus of, 125; international contacts of, 132, 160; network of, 159–61; options and, 192; participation in money lending, 130–31; participation in share

trading, 124–25, 132–40; Semach Ferro’s power of attorney from, 159; tight knit community of, 134; trade involvement, 130–33 Pourcq, Jacques de, 7, 33 precompanies, 13; Long-Distance Company, 9–10; New Brabant Company, 10; Old Long-Distance Company, 9–10; shareholders pay out by, 44 prices. See VOC share price put option, 189–91, 278 Raet, Elias de, 87 Raey, Leonart, 86, 87, 90 Raid on the Medway, 165 Raphoen, Christoffel, 101, 103, 108, 111, 114, 121, 137 Raphoen, Jan, 101, 103, 108, 111, 114, 121, 137 Reen, Jan Hermansz van, 87 Reformation, 131 regulations, for share trading, 117, 147, 169, 217, 219; on invalid contracts, 94, 99; on naked short selling, 66 reneging, defaulting, 197, 204; by counterparties, 137, 170, 175, 191, 210; during crash of 1688, 227; by Salvador, 180; in 1672, 208–9 renunciation clause, 87, 96, 98 repo, 201, 225, 278; financial situation disguise by, 178–79; financing of, 199; interest on, 200; after 1672, 211 Repo 105 transactions, of Lehman Brothers, 178 rescountering meetings, for forward contracts, 173–75 return, of VOC shares, 13–14, 37, 49, 69, 112, 141, 147, 187, 199, 205, 239 Rijckaert, Andries, 101 risk, 1; options and, 188–89; price of, 187–91, 208; willingness to take, 191–96 Rodrigues, Antonio, 144, 194 Rodrigues, Manuel, 122–23 Rodrigues Mendes, Michiel, 165

293

Index Roode, Sacharias, 25 Rosecrans, Haermen, 55, 79 Roshuijsen, 144 Rost, Meindert, 171 Rotgans, Jan Hendricksz, 55; van Balck transaction with, 91–92; fraudulent share and, 91; as genuine buyer, 90– 94; as le Maire’s syndicate member, 93–94 Rotterdam chamber, of VOC, 9, 12, 155 Royal Netherlands Academy of Arts and Sciences, 191 Royal Picture Gallery, 128 Ruyter, Michiel de, 165 Salvador, Abraham: default on loan, 180; secured loan of, 179–80 Schelling, Pieter Sijmonsz van der, 87 Scholes, Merton, 190 Second Anglo-Dutch Naval War, 165 Second West India Company, 240 secured loans: of C. van Beuningen, 225; as investment instrument, 178; official procedure for, 181; of Salvador, 179– 80. See also collateral loans Securities and Exchange Commission, U.S., 66 Semach Ferro, Isaac, 158, 159 Semeij, Dirck, 85, 109; forward contract of, 59, 82; lawsuit against de Meijere, 83–84 Seulijns, Willem, 101 Shakespeare, William, 130–31 share capital, of Amsterdam chamber, 12, 17, 27, 38, 86, 88, 125, 127, 164 share collateral, 175–83, 278 shareholder protests, 51–74, 63–65; of 1613, 69; pamphlets use in, 71–76, 154 shareholders, of VOC: anger of, 51–74; battle with pamphlets, 71–76, 154; chief participants as, 75; deferred dividend to, 153; dissatisfaction of, 240; dividend payment to, 47; lack of formal rights of, 65; long term investment by, 192; military operations protest by, 69–71; policy setting by, 13

shareholders, precompanies pay out to, 44 share prices. See VOC share price share register: of Amsterdam chamber, 11, 18, 23, 25; of Enkhuizen and Rotterdam chambers, 9 shares: as collateral, 175–83; collateral loans for, 176–77; overvaluation of, 61; ownership of, 99; of smaller VOC chambers, 155–56; States General permission to issue, 241; taxes on, 147; traders’ refusal to accept, 5; of VOC, standardization of, 108–11 share traders’ clubs. See trading clubs share trading: Confusión de confusiones on, 2, 3–4, 233; of Dias Henriques, 162; by directors, 63, 89, 110, 153, 240; locations, 18–21, 27–31, 30, 103–8, 106; negative impact on Dutch Republic, 238–39; by Portuguese Jews, 124–25, 132–40; regulations, 66, 94, 99, 117, 147, 169, 217, 219; in shares of smaller VOC chambers, 155–56; techniques, 229–31 share trading, early, 35–50; aldermen’s court, Supreme Court of Holland, Supreme Court of the Republic development of, 99; commission, 35, 37; dividend paid in spice, 44–50; l’Empereur and, 35–37; inadequate information, 37–43 short selling, 61, 278; prohibition, during 2008 financial crisis, 66. See also naked short selling Silva, Mozes da, 165 Smeth, Raymond de, 220–21 Sotto, Abraham del, 148 South Sea Bubble (1720), 242–44 South Sea Company, 242 Spain, 37–38, 128; Dutch Republic truce with, 39, 40; war with, 127, 240 speculation: in Dutch Republic, 115–16; gambling with leverage, 196–201; of Jewish traders, 140–42; price of risk, 187–91, 208; stock market boom and, 121; in trading clubs, 172; in tulip bulbs, 116–21, 209–10; in

294

Index VOC shares, 1, 115–16, 121, 140– 42, 164, 172, 187–201; willingness to take risks, 191–96 Sprenckhuysen, Thomas, 100–101, 102, 114, 134, 137, 141 Staets, Hendrick, 135, 138, 139–40 standardization, of VOC shares, 108–11 standard share value, 110 States General: naked short selling ban and, 65–66; permission to issue shares, 241; Philip II renouncement of, 14; VOC charter, 9, 10, 12, 13– 14, 153; VOC petition to, 63–64 States of Holland: bonds issued by, 115, 153, 199; le Maire syndicate petitions to, 63–64; VOC petition to, 61–62, 65 stockbrokers. See brokers St. Olaf’s Chapel, 27–31, 30 straddle, 190, 278 Straetmaker, Dirck Pietersz, 22, 23 Straits of Magellan, 54 Supreme Court of Holland, 65; van Balck appeal with, 92; de Meijere appeal to, 84–85; on naked short selling ruling by, 203, 204; ruling on directors’ case, 89–90; Semeij appeal to, 85; tulip bulbs and, 119–20 Supreme Court of the Republic, 65, 99; van Balck appeal to, 92–93; directors’ appeal to, 90; directors’ case ruling by, 90; on forward contracts, 85–86; de Meijere appeal to, 85 Surck, Anthony van, 25 synagogue: courtyard, 1702 ban on trading in, 124; 1677 ban on trading in, 124 Synod of Dordrecht, 116 taxes: levy on share ownership, by Dutch Republic, 132; on share transactions, 147 ten-year account, of VOC, 15, 23, 37, 38, 45 Thijs, Hans, forward contract of, 57, 58, 67–68 tradability, of VOC shares, 9–16, 141, 239–40

trading clubs, 121, 165–83; bargaining supervision in, 170; Collegie van de Actionisten, 169–73, 184, 197, 241; Confusión de confusiones on, 171; honor and trust, 167–69; Jewish, 171; leverage and, 197; monthly rescountering, 173–75; rules of, 170; settlement, 173–75; speculation in, 172 transfer of shares, 21, 23, 26–27; stamp duty on, 26; VOC directorships procedure change, 89 Treaty of Tordesillas, Republic ignoring of, 40 Trip, Louis, 191 trust: in financial crisis of 2008, 2009, 209; forward contracts and, 167; in 1672, 209; in tulip mania, 210. See also honor tulip bulbs: court cases about, 119–20, 211; scarcity and popularity of, 119; speculation in, 116–21, 209–10; Winckel’s trade of, 117 tulip mania, 117–18, 120–21, 209–10; club of bulb dealers during, 171 Tweede noot-wendiger discours pamphlet, 73 Twelve Years’ Truce (1609–1621), 240; Portuguese Jews and, 126, 128; terms of, 40; war with Spain and, 127 usury regulations, 131 Vega, Joseph de la, 1–6, 50, 132, 141, 147–58, 168, 191–92, 221–23, 228–31, 233–34 Velaer, Jacques de, Jr., 11, 163; as broker, 35–37; correspondence of, 39, 41, 47–48; on forward share price, 60 Velaer, Jacques de, Sr., 86, 87, 89 Velters, Jeronimus, 140, 171, 216–19, 238; as Amsterdam chamber director, 154; crash of 1688 and, 216, 233; forward contracts sold by, 154; information and, 143–49, 159; on information from Orient, 150–51; insider trading, 154; public knowledge information of, 160;

295

Index Velters, Jeronimus (continued) repo consideration by, 200–201; rumors of war and, 222; as share trader, 143–46; on VOC share price, 205–6 Venturyn, Guilliam, 195–96 Verhoeff, Pieter Willemsz, 41 Vingboons, Philips, 194 Visscher, Adolf, 148–49 VOC. See Dutch East India Company VOC share price, 103, 110, 166, 189– 90, 225, 227, 238–39, 243; crash of 1688 and, 211–14, 216–19; Disaster Year and, 205; drop in, in 1672, 205; ex-dividend, 205, 215; fall in, during Second Anglo-Dutch Naval War, 166; fluctuations, 169–70, 192, 196, 209, 223; information on, 72, 149, 151– 54, 160–61; le Maire syndicate and, 51, 55–69; low, 56, 60, 62–65; peace treaty and, 185–86; rise in, 210, 223; share dealers influence on, 233; sharp rise in, 112–15; States General and, 65–66; tulip mania and, 121; Velters on, 205–6; volatility of, 177; war and, 132, 134, 142, 205–6 VOC shares, 17, 55; collateral loan for, 176–77; forward contracts for, 167–68; reasons to invest, 32, 44, 50, 115, 121; return, 13–14, 37, 49, 69, 112, 141, 147, 187, 199, 205, 239; speculation in, 1, 115–16, 121, 140–42, 164, 172, 187–201; standardization, 108–11; tradability, 9–16, 141, 239–40 volatility, 177, 278

Wachtmans, Antoni, 36 Wall Street (movie), 235 war, 166, 242; Confusión de confusiones on, 132, 221–22, 223; with England and France, 157, 184–86, 206, 217–18; with Portugal, 10; rumors of, 221–22; with Spain, 127, 240; VOC military operations, 68–69, 74, 112; VOC share price and, 132, 134, 142, 205–6 Warmoesstraat, 27–31, 30; commodities merchants at, 27–28; Lijntgens house at, 27; transport artery of, 28 West India Company (WIC), 40, 55, 240–41 Wijse, Hendrick de, 144 Wildt, Job de, 220 Wilhelm, Jan de, 154 William III (prince, stadholder), 149, 162, 206, 207, 216; Alvares Machado connections with, 185; England invasion of by, 178, 214– 15, 220–24 William the Conqueror, 214 Winckel, Wouter Bartholomeusz, 117 Witsen, Nicolaes, 215 Witt, Johan and Cornelis de, 205, 207 Wuijtiers, Govert and Jacob, 180 “Ymant Adams” (“I am Adam”) pamphlet, 72 “Ymant van Waar-mond” (“I speak truth”) pamphlet, 72 Zesen, Philipp von, 104 Zocher Exchange, 103, 182

296