The advanced nature of the Dutch financial sector – which can be, and has been, described as the world's "first modern economy" – was a product of three main developments: [i] the Dutch revolt of 1568-1648 and the associated Spanish persecution of Protestants in the low countries, which resulted in a significant migration of business expertise and capital from the Spanish Netherlands (especially Antwerp, which in addition was effectively blockaded by the Dutch fleet for much of this period) to the United Provinces; [ii] the country's status as the world's leading carrier of bulk goods in the 16th century, which in turn led to its rise as Europe's premier long-distance trading power in the 17th; and [iii] the exceptional profits made in the "rich trades" that the Dutch dominated, especially the trade in spices.

The high cost and dramatic uncertainties of the shipping trade resulted in the creation of joint-stock companies (of which by far the largest was the Dutch East India Company, or VOC), the world's first important stock exchange, and innovative financial instruments such as futures contracts. After c.1600, the regents (ruling class) and the great merchants of the United Provinces could choose to invest their money in a variety of ways. They could earn guaranteed interest by buying government bonds or depositing their cash with one of the many new banks which were springing up. If they felt a little more adventurous, they could buy shares at the stock exchange or purchase a stake in a local drainage project or in a ship off to trade in the Americas.

Looking in a bit more detail at just a couple of these points, we can for example say that

From the time of the first VOC voyage to the east, the profits that were earned, and the dividends that were paid, were simply colossal. Returns of one thousand percent or more were recorded on certain voyages, and dividends of 10, 20 or, in one case, even 100 per cent were paid annually to the shareholders. The fortunes that the merchant princes of Amsterdam and Middelburg thus accumulated exceeded, in some cases, those of European royalty. The richest man in the Dutch Republic in the 1620s was Jacob Poppen, whose father Jan had been one of the earliest investors in the Indies trade. Jacob’s total worth was put at half a million guilders – this at a time when it was possible to house and feed a family in Amsterdam on about 300 guilders a year.

As for the Amsterdam stock exchange, it opened in 1610 in a purpose-built building located in the city centre, almost on top of the dam that gave the town its name:

Not too many years before, the traders who now occupied one or other of the 123 offices in the exchange had been forced to transact their business out in the open on Amsterdam’s New Bridge or – if wet – among the pews of St Olaf’s Chapel or the town’s Old Church. As the city boomed in the early years of the seventeenth century, however, and foreign trade poured in, it became clear that the stock exchange needed a permanent and weatherproof home. The beurs, which opened for business in 1610, met that need and, by its sheer physical presence, went some way to assuaging the suspicions of Amsterdam’s more conservative burghers, who felt there was something faintly ungodly about dealing in shares.

Trading on the beurs was strictly regulated, and was permitted only between the hours of noon and two. Each day’s trading had to be packed into those two hours, and the raucous frenzy that erupted within the quadrangle as the big clock in the tower struck for midday was such that anyone strolling past the exchange at noon might be forgiven for concluding that the burghers had a point. Business was conducted at such a pace that brokers who years earlier had sealed each deal with an elaborate ritual of hand-shakes now merely slapped wildly at each other’s hands before rushing on to the next trade.

Hundreds of traders were licensed to deal on the stock exchange – there were perhaps 400 official beurs-brokers in the 1630s, and they were joined on the trading floor by up to 800 unlicensed freelance dealers who specialised in trading small packages of shares at low prices. In one description of the exchange, the contemporary writer Joseph de la Vega observed one such freelance dealer, who ‘chews his nails, pulls his fingers, closes his eyes, takes four paces, and four times talks to himself, raises his hand to his cheek as if he has a tooth-ache, and all this accompanied by a mysterious coughing.’ Vega does not mention what his small-time broker was hoping to buy or sell for his handful of guilders, but he had a considerable choice: by 1636, at least 360 different commodities were traded on the Amsterdam exchange, and traders were also able to trade in futures in timber, hemp or spice - a concept first introduced in 1608.

It's interesting to note that the Dutch government itself proved powerless to prevent the spread of futures trading - in a Calvinist society, it was regarded as fundamentally immoral to buy and sell goods that one did not properly own - despite banning the practice, and laws issuing repeating the prohibition on futures trading in 1621, 1623, 1624, 1630 and 1636.

Sources

Mike Dash, Tulipomania (1999) and Batavia's Graveyard (2002)

Jonathan Israel, The Dutch Republic: Its Rise, Greatness and Fall, 1477-1806 (1998)

Jan de Vries and Ad van der Woude, The First Modern Economy: Success, Failure and Perseverance of the Dutch Economy 1500-1815 (1997)

C. Lesger and L. Noordegraaf (eds), Entrepreneurs & Entrepreneurship in Modern Times: Merchants and Industrialists Within the Orbit of the Dutch Staple Market (1995)