Many of you have at some point - as I'm sure - come across the claim or statement that the Dutch East India Company (VOC = Vereenigde Ooostindische Compagnie) was (in modern currency) worth several trillion dollars at its peak, adjusted for inflation. Though the exact cited number differs quite often whenever that supposed 'fact' is shared (sometimes its 7 trillion, 7.4, 7.9, or even higher than 8 trillion), the claim itself has permeated the society of history enthusiasts and persists still, and subsequently has become one of the many common misconceptions if history, erroneously labeled as 'fun fact' or even 'common knowledge'. But how accurate is that number in reality, and does it hold up to professional criticism? - Same as another compilation of debunking answers from r/AskHistorians, I too had collected a few of the already existing analyses of that calculation as a response under this post: it is insofar important as a comment in the same thread advised an equally prudent amount of scepticism and caution when coming upon the calculations by those 'debunking' the original claim. That is not to say that all of these newer and alternate calculations are automatically to be dismissed out of hand by default or inherently wrong, but rather that they suffer from the same dilemma, as any inflation adjustment accounting for over several centuries does. With that out of the way, lets take a look at the criticism:
1. Our first example comes from u/JolietJakeLebowski's post on r/badhistory:
''Hi all, mildly annoyed Dutchman here.
The claim that the VOC was the largest company in history, with a market capitalization of $7 trillion or more, has been going around the internet for many years, and yet, as we'll see, it's complete bunk.
Made famous by an article with pleasing infographics on Visual Capitalist, this erroneous claim garnered tens thousands of upvotes on Reddit at AskHistorians, DataIsBeautiful, and TodayILearned, and made its way to places like Bigthink, Business Insider and elsewhere. Where did this claim come from, and does it hold up to any level of scrutiny?
In August 2012, financial blog and investing advice company Motley Fool published the article that started it all: a blog post congratulating Apple on achieving the largest market capitalization in American stock market history: a paltry $616 billion at the time, compared to $2350 billion now.
In the blog post, author Alex Planes posits an interesting question: what if we adjust for inflation, or count companies that are not publicly traded? Is Apple still the largest? Going back in time, Planes discusses PetroChina, Saudi Aramco and Rockefeller's Standard Oil. So far so good, relatively speaking.
However, the real r/badhistory begins when the article reaches the 'Age of Sail', and especially the Dutch East India Company (VOC):
This was in 1720, when the average person could expect to live fewer than 40 years [...] The real economic value of the two companies at their peaks would today be in the range of $10 trillion, with the South Sea Company worth $4 trillion and the Mississippi worth $6 trillion.
[The VOC's] market capitalization would reach 78 million Dutch guilders at the height of Tulipmania [...] That would place its modern-day valuation in the $7.4 trillion range, making the Dutch East India Company the largest company in history.
Soooo... Pretty much everything I just quoted there is wrong.
Sources: Sources: Barry Ritholtz, Marc Faber, Richard Dale, Bloomberg, Clem Chambers, Wikipedia, Yahoo! Finance, and Sheridan Titman. Adjusted for inflation.
First of all, I have painstakingly checked many of these... names (they cannot reasonably be called citations as there is no link or title that is referenced) to see if any of them have published anything of note on the Dutch East India Company. None have.
- Barry Ritholtz is an investment advisor with a long-standing market blog called The Big Picture. His blog contains a single article mentioning the VOC, which doesn't mention any monetary value.
- Marc Faber is another investment advisor/blogger, publisher of the Gloom, Boom and Doom Report. No mention of the VOC on any of his websites.
- Richard Dale is an actual economist, and a rather famous one at that. Searching the author's name on JSTOR I came across this article, which is probably Planes' source for the South Sea Company's market cap (£164 million in 1720).
- 'Bloomberg' could be any number of articles, but searching bloomberg.com before 2013 shows no mention of the VOC.
- Clem Chambers is another financial blogger, Bitcoin enthousiast and writer of 'financial thrillers', who owns and operates ADVFN.com. Warning: it's so 90s it may hurt your eyes.
- Wikipedia. You know what this is, and why it's not a good source.
- Yahoo! Finance. Possibly even worse.
- Sheridan Titman. Another actual academic! Titman is a professor at the Department of Finance and has published numerous articles in market economics, although Motley is probably using his article in the Texas Daily Enterprise to get the value of Saudi Aramco, mentioned earlier in their article. In any case, Titman has certainly not published anything remotely about the VOC.
So, all the sources are bunk except for Dale and Titman, and those are not related to the Dutch East India Company.
Let's break down the rest point by point:
This was in 1720, when the average person could expect to live fewer than 40 years
Ah, the old classic. Yes, life expectany at birth was less than 40 years. No, in 1720 the average person above the age of 15 did not die at age 40. They could expect to live to 60 or even 70 (Source 1, Source 2). I guess if we're charitable we could interprete 'the average person' as a 0-year-old infant.
The real economic value of the two companies at their peaks would today be in the range of $10 trillion, with the South Sea Company worth $4 trillion
Richard Dale's article which I mentioned above states a market capitalization for the South Sea Company of £164 million in 1720.
Now, it is notoriously difficult to convert this to, say, 2020 pounds. As explained on MeasuringWorth.com, a well-sourced inflation calculator, there are many methods, but I will use the Real Price Index they provide.
Using their handy calculator, I arrive at a value of £22.2 billion in 2020 pounds1 ($28.5 billion). A lot, but certainly nowhere close to $4 trillion.
and the Mississippi worth $6 trillion.
The 'Mississippi Company' didn't really exist at the time of the 1720 bubble: it was known as the Compagnie des Indes then. The company, founded by the Scotsman John Law, was trading 625,000 shares at a peak of 18,000 livres per share in 1720. This was at the height of the Mississippi bubble and didn't come close to the actual value of the company; it was basically a classic pump-and-dump bigger-fools scam. NFT-style, baby!
Using the above values, we can calculate a market cap of 11,250,000,000 French livres. How much is this in British pounds of the time? Well, I couldn't resist quoting Sir Isaac Newton himself, could I, even though his 1702 report predates 1720 by a few years:
the Livre is worth 1s. 2.21d
So 1 French livre = 1s. 2.21d = 14.21 pence = 14.21/240 = 0.0592 British pounds.
In other words, the Companie des Indes was worth £666 million in 1720, or £101.7 billion in 2020 pounds ($130.5 billion).
[The VOC's] market capitalization would reach 78 million Dutch guilders at the height of Tulipmania [...]
First off, the VOC didn't reach its peak during the Tulipmania (1637): that was a localized phenomenon and didn't impact its stock price much. Although there is a steep rise in the stock price around that time, that is probably due more to the insane 41% dividend that was payed in the three years before 1637. VOC stock reached its peak around the same time as the South Sea and Mississippi companies, i.e. in 1720, when it briefly reached a stock price of around 1200 (indexed from 100 of its founding capital in 1602).
Source: Global Financial Data, and this blog post from Lodewijk Petram, economist, historian and writer of The World’s First Stock Exchange (New York: Columbia University Press 2014).
So, using the maximum stock price of 1200 we can calculate the VOC's market cap from its initial 1602 stock issue: 6,429,588 guilders. We simply multiply that value by 12 (it didn't change much) to arrive at 77 million guilders. Citing Sir Isaac again:
In Holland the Guilder or Floren is of equal value with 20.82d
So 1 guilder = 20.82 pence = 0.08675 British pounds, or 1 British pound = 11.52 guilders.
(I presumed to double-check Sir Isaac by cross-checking the accuracy of this value based on the silver content of a guilder versus a British pound. The British crown coin, valued at 1/4 of a pound, weighted a troy ounce sterling, meaning it contained 28.7 grams of silver. The Dutch Rijksdaalder ('Rix Dollar'), which was a similar coin to the British crown, contained 25.4 grams of silver and was valued at 2.5 guilders. So a guilder contained (25.4/2.5=) 10.16 grams of silver while a pound sterling contained (4x28.7=) 114.8 grams of silver, around 11.3x as much, so unsurprisingly, Sir Isaac Newton's math checks out.)
In other words, the VOC at its height was worth around £6.7 million, or £1 billion in 2020 pounds ($1.28 billion).
That would place its modern-day valuation in the $7.4 trillion range, making the Dutch East India Company the largest company in history.
I really, honestly don't know how anyone could even come close to this. Always check your sources, kids.
Sources:
Dale, Richard S., Johnnie E. V. Johnson, and Leilei Tang. “Financial Markets Can Go Mad: Evidence of Irrational Behaviour during the South Sea Bubble.” The Economic History Review 58, no. 2 (2005): 233–71. Link.
Griffin J. P. (2008). "Changing life expectancy throughout history." Journal of the Royal Society of Medicine 101, no. 12 (2008), 577. https://doi.org/10.1258/jrsm.2008.08k037, freely accesible here.
Britannica, Editors of Encyclopaedia. "Mississippi Bubble." Encyclopedia Britannica, accessed 11/Jan/2022. Link.
Britannica, Editors of Encyclopaedia. "sterling". Encyclopedia Britannica, accessed 24/July/2022. Link.
Newton, I. and Stanley, J. and Ellis, J. "Report of the Officers of the Mint about the Preservation of the Coyne. [1702]" Select Tracts and Documents Illustrative of English Monetary History 1626-1730, ed. William Shaw, (London: Wilsons & Milne, 1896). HTML-edition from pierre-marteau.com, ed. Olaf Simons, 2004 (accessed 11/Jan/2022).
"Five Ways to Compute the Relative Value of a U.K. Pound Amount, 1270 to present," MeasuringWorth, 2022. Link.
Israel, Jonathan. 1995. The Dutch Republic: its rise, greatness and fall, 1477-1806. Oxford: Clarendon Press.
Taylor, Bryan. "Data for Amsterdam Stocks from the 1600s and 1700s Added to GFD" GFD, May 23, 2018 (accessed 04/Apr/2022). Link.
Super Silver Bonus round: We could also calculate the values using their value in silver bullion against today's market price of $677.32/kg. This would be erroneous, since the price of silver has generally not kept up with inflation, but hey, it's fun. After all, thanks to Isaac Newton we now know that a 1702 pound contains 114.8 grams of silver. Let's just convert that price per troy ounce to a price per kg:
So the companies were worth:
- South Sea: £164 million 1720 pounds = 18,827 metric tons of silver = $12.8 billion
- Mississippi: £666 million 1720 pounds = 76,457 metric tons of silver = $51.8 billion
- Dutch East India Company (VOC): $6.7 million 1720 pounds = 769 metric tons of silver = $0.52 billion
Here's a nice visualization if you want to get an idea of the amount of silver we're talking about here.''
2. Our second entry features the great u/IconicJester on r/Askhistorians:
''Beware inflation adjustments. I know a bit about the VOC, but a detailed examination of the actual value of the company at the time would be a different post. Here, I am just writing about the general difficulties with statements like this one. (I am using today not to talk about current events, but just as a point of reference for comparing values to square with the question.)
The difficulty is in understanding both how to calculate past values, and what kind of comparisons you want to make to the present. The unfortunate truth is that there is no single way to do this, and the difference among methods is exponential, exploding over time. The number, from what I can see based off the calculations of Alex Planes at the Motley Fool, is one extreme way of looking at the question. But this method - taking some inflation figure and compounding across time - yields crazy results that (if one is not careful in one's interpretation) suggest that all companies in the past were immensely valuable in modern terms.
But this is a fallacious way to understand wealth that in no way accounts for the overwhelming increase in our wealth and incomes over the last four centuries. People are richer, and companies are move valuable today than at any point in the past, in real terms. If you owned 100% of Apple, and sold it to buy things, you would get a much larger pile of much better stuff than if you did the same with the VOC in 1637.
So how does Alex Planes get this number into the trillions? This is just the magic of compound interest over extremely long time spans. If you think the inflation rate is a consistent 2%, then anything from 383 years ago at the height of Tulipmania is now worth about two thousand times that amount. Maybe there is some "immortal investor" perspective that makes this correct - if history was an investment game, and you were playing it to win, you would want to invest your wealth as early as possible. (Maybe it is no surprise that this comes from the Motley Fool, where the players of this game congregate.) But it does not reflect a true comparison of real purchasing power.
(Edit: In any case, you'd have to pick a comically high inflation rate to get to 8.28 trillion! Even 2% compounding would only get you to about 150 billion or so... I suspect they're using 3% per year, which is quite a lot, and much faster than global economic growth!)
One can use different ways to understand this question to see the issues with the $8.28 trillion figure. For instance, we could do the calculation directly in gold - how much gold would it have taken to buy the Dutch East India company, and how much would that gold cost today? (I am not advocating this as a general method, though silver is used in this way in economic history sometimes. But this has a certain intuitive sense to it, as gold is at least physically the same thing today as then.) A Dutch Guilder was about 0.6 grams of gold, and Planes values the contemporary VOC at 78 million guilders at its peak. Doing some quick back of the envelope math, that's about 47 million grams of gold, or about 47 metric tons.
What would 47 metric tons of gold cost today? A ton of gold is about $62 million, in USD, so 47 of them is just shy of 3 billion dollars. Impressive... but also three and a half orders of magnitude smaller than 8.28 trillion dollars. If one were to buy gold with 8.28 trillion dollars today, you would end up buying about 134,000 metric tons, or about 2/3 of the entire current global gold stock. Needless to say, if you sailed into Amsterdam with a fleet of about 100 merchant ships filled to weight capacity with gold, you would make the shareholders of the VOC look comically poor. (You would also have vastly more than the total gold stock of the world at the time.) So, in that sense, a strict gold-to-gold comparison, which has its own kind of inflation-proofing, the VOC would be worth a few billion, but certainly not a few trillion.
If you push this idea, it starts to fall apart. The real underpinning of this result is that there has been exponential economic growth over these four centuries. The global economy is vastly larger at the end of the 20th century than it was in the 17th century, and the biggest companies were much bigger by any reasonable metric. Much is being made of the fact that the VOC employed a great many people, citing the 70,000 figure at the peak. That's damned impressive for the 17th century, but this would be only moderately large by the standards of the industrial giants of the late 20th century - and none of those are "worth" anywhere near 8.28 trillion dollars. Not because they aren't bigger than the VOC in real terms - the resources at their command - but because they don't have three hundred extra years of compound interest.''
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