How did trade companies (EIC,VOC, etc) become so wealthy trading largely luxury discretionary goods?

by acvdk

My understanding is that most 17th and 18th century trade companies that traded in Asia traded primarily luxury discretionary goods such as tea, spices, silk, opium, etc. I understand that these are valuable commodities to some extent, but it is amazing to me how big these companies were able to become. From my understanding, the entire Dutch empire and Golden Age was brought about by trading luxury goods and the VOC achieved a peak valuation over $7 trillion, inflation adjusted. This seems to make very little sense to me because:

My understanding is that at the time, there were still very few people who could afford luxury goods at all. Even if all of the nobility of Europe was drinking tea, it isn't that big of a market, compared to, say, the amount of people today who use MS Windows or even buy luxury clothing.
Even in the modern era where there is an expanded aspirational/middle class, luxury goods companies are a very small part of the economy. If you look at the Fortune 500, you have to go down to #72 - Best Buy to find a company that deals almost entirely in discretionary luxury/leisure items. Even companies like Apple that make consumer products are essentially making productivity tools. The LVMH and Richemont type companies that sell high end consumer goods are even smaller.

I mean, from my understanding, the Spanish got wealthy primarily from extracting precious metals from the Americas, which makes sense. How were companies like the EIC and VOC able to achieve valuations in excess of modern multinationals? How were entire economies and nations built on trading luxury goods?

Well half of your question is basically made void by the fact that the valuation of over 7 trillion after inflation is most certainly made up and incorrect. The worth of VOC varied over time but I think the largest number I've see is about 78 million guilders (or 74 somewhere). The only way this could be worth 7 trillion is if one guilder would be worth 100 000 modern dolars, which is highly unlikely. Ordinary labourers living on the edge of poverty back then were getting salaries of few guilders (like 2-10) per month. With this valuation, they would be making 200,000 USD per month! Sign me up! You can read a nice discussion in this old thread. Some other estimates of values of the company can be found, e.g. The World’s First Stock Exchange Brought to by Lodewijk Petram:

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

The other part of your question is again based on a faulty premise. The items brought back were valuable, but not luxury items available only to the richest, but accessible for the emerging middle class. And the trading companies were importing them on an enormous scale, like e.g. millions of pounds of pepper and spices imported. Which would ordinarily in Europe be sold at 2-3 (and more) times their price in Asia. On such a profit margin, on such quantities no wonder they made such a profit. VOC made 2 million guilders profit per year (which by above evaluation was like 40 million USD dolars profit yearly)

More details about the trade was explained by /u/mikedash here