The charter of the Dutch East India Company (Vereenigde Oost-Indische Compagnie – VOC) was not renewed. By 1783, the coin-backed accounts at the Bank of Amsterdam had collapsed from 17 million guilders in 1780 to just 300,000 guilders in 1783. This marked the end of the Dutch guilder as the world’s reserve currency. In 1796, the VOC was nationalized, and in 1799, its charter was not renewed. Most of the VOC’s Asian possessions were ceded to the British after the Napoleonic Wars, and the English East India Company took over the VOC’s infrastructure. The VOC transformed financial capitalism forever: it introduced limited liability for its shareholders, which allowed the company to finance large-scale operations. Limited liability was necessary because the company’s collapse would have destroyed even the company’s largest investors, much less small investors. While this innovation forever changed capitalism, there were ways in which the VOC failed to transform itself, which ultimately led to its downfall. The company’s capital remained virtually unchanged throughout its 200-year existence, hovering around 6.4 million guilders (about $2.3 million). Instead of issuing new shares to raise additional capital, the company relied on reinvested capital. The VOC’s dividend policy left little capital to reinvest, so the company turned to debt. The company first issued debt securities in 1630, bringing the debt-to-equity ratio to two. The ratio remained at two until 1730, rising to about four in the 1760s, then increased dramatically in the 1780s to about eighteen, ultimately driving the company into bankruptcy and leading to its nationalization and disappearance.
