Dutch Stock Market Of The 1600s: How That Gave Rise To The First Modern Economy

Have you ever thought about where the system of stocks and shares started? Although the Romans had the idea of shared ownership, the history of the first modern economy is the history of the Netherlands between 1500 and 1815.

The Roman Empire contracted out certain services to private groups called publicani. Shares could be bought in publicani and were called “socci” and “particulae” depending on their value. Edward Chancellor argued in his book Devil Take The Hindmost that speculation in these socci and particulae became so widespread that it might have been the first speculative bubble in stocks.

But the first company to issue shares of stock was the Dutch East India Company in 1606. The introduction of joint ownership surely made a massive impact on Europe’s economic growth. Originally it would have involved combining capital and resources together to finance the building of a ship. A venture such as this one could only be undertaken by governments or wealthy individuals into joint ownership had become commonplace.

Economic historians are often interested in the Dutch stock market of the 1600s, as it seems to have set the standard in economic systems. There is documentation proving the use of stock options, short selling and shares bought with credit, creating a speculative bubble which burst in 1695.

Practises such as short selling continued to occur during this period, despite the government passing legislation outlawing it. It shows that individuals fulfilled contracts that were not legally enforceable.

After becoming independent from Philip II of Spain around 1585, The Netherlands experienced a century of explosive economic development. A revolution in shipbuilding led to an advantage which helped the young republic become a dominant trade power by the mid 1600s. A mini industrial revolution powered by wind and peat, combined with changes in agriculture meant that the Dutch achieved the highest standard of living in Europe, probably the world, by the middle of the 17^th century.

Around 1670, wars with France and England, as well as adverse economic development, burst this bubble. The Dutch economy was retrenched, with industrial infrastructure dismantled, and growth levelled off. The Dutch invested in new enterprise such as plantations and whaling, but these often failed to replicate earlier growth.

The financial strength of the republic enabled it to play a big part in the European conflict around the turn of the 18^th century, but the Dutch never again showed the same acceleration of economic development as it did in the 1500s.

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