Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

The Dutch invented capitalism as we know it. This was great for the Dutch and great for the world, but like most great inventions, it brought with it some potentially deadly consequences. While production, trade, and private ownership had existed before, the ability of large numbers of people to collectively buy ownership in money-making endeavors through public equity markets did not exist. The Dutch created that when they invented the world’s first publicly listed company (the Dutch East India Company) and the first stock exchange in 1602. Like most inventions, these capital market developments arose out of necessity and self-interest. The voyages across the world in search of new trade routes were risky ventures, so it made sense for merchants to sell some of the risk associated with the voyage to others in exchange for a share of the future profits. At the time the Dutch introduced equity shares in their voyages in the mid-1500s, it was revolutionary. Until 1600, these shares were held by only a small number of merchants, largely lacked transparency, and were illiquid, so their attractiveness to outside investors was limited. The formation of the Amsterdam Stock Exchange in August 1602 and the listing of the Dutch East India Company spread share ownership much wider (more than one in 50 Dutch adults owned shares), and the exchange’s clear rules about ownership and transfer of shares made the market much more transparent. The Dutch East India Company was an equally revo...