Can the secret of modern prosperity be found in Amsterdam’s past?

It is not much of an exaggeration to say that modern prosperity was born in the marketplaces of Amsterdam, midwifed by that spirit of openness. Any long-​run timeline of living standards resembles a hockey stick, remaining more or less stagnant through most of history, then skyrocketing in just the last few centuries. Over the last 200 years, the global economy has grown more than a hundredfold and average lifespans have more than doubled. Average incomes rose over twice as much in the last 100 years as in the previous 1,800, and perhaps a third of all the wealth that humanity has ever created appeared in the last two decades alone. This explosion of wealth-​creation forever transformed the way that we live, and understanding its origin may reveal the secret to future economic growth.

That hockey stick-​shaped liftoff in living conditions didn’t occur in every part of the world at once. It began somewhere, and that somewhere was Amsterdam. The city was central to the Dutch Golden Age when the Netherlands rose from a small, obscure nation on the North Sea to one of the world’s wealthiest and most influential countries. Amsterdam has been called the “capital of the Golden Age,” with the Netherlands’ rise stemming from a rapid and continuous economic expansion centered in Amsterdam.

Economic historian Deirdre McCloskey claims the Great Enrichment was prompted by a shift in the climate of ideas, a “sharp ideological swerve originating in Holland.” In the 17th century, in the Dutch Republic, a fundamental change occurred in how people thought. It was the dawn of liberalism (in the original sense), societal openness, and relative respect for personal and economic freedom.

What did that mean in practice? Amsterdam became an early center of globalization, exemplifying openness to foreign ideas, people, and goods. The Dutch opened up a global trade network with the Far East and gained an increasing share of world trade, freeing Amsterdammers to engage in international commerce. The city was also remarkably tolerant with respect to religious and intellectual freedoms. Controversial philosophers and religious refugees alike found a safe haven in the city. Amsterdam served as the headquarters of the world’s first multinational corporation, the Dutch East India Company, which was founded in 1602. Amsterdam can take credit for housing the first modern stock exchange, which has traded continuously since the early 17th century, and is commonly considered the world’s oldest securities market. As trade and financial innovations enriched the city, Amsterdam also became a global leader in science and art.

Amsterdam’s ingenuity is owed at least in part to its historic tolerance and openness. During Europe’s wars of religion, Amsterdam was a refuge for Protestants of varying kinds, priding itself on granting freedom of conscience to all residents. The city’s tolerance did not meet modern standards, of course. Public displays of Catholicism were illegal, and Catholic churches had to meet restrictive criteria and remain hidden from public view. But in an era when the reactions of religious intolerance could be lethal and even different Protestant denominations often bitterly opposed one another, Amsterdam practiced a relatively open-​minded approach. Amsterdammers embraced and courted skilled foreigners of various creeds at a time when many other European countries were becoming more insular and religiously intolerant.

By the year 1600, one-​third of Amsterdammers were foreign-​born. This openness to immigrants of various faiths and backgrounds helped Amsterdam double its population to about 50,000 between 1570 and 1600. Amsterdam was also the center of the Dutch Jewish community. The revolt against the Spanish Empire that led to the Dutch Republic’s founding and kicked off the country’s golden age also led to an influx of Iberian Jews seeking greater religious freedom. Amsterdam soon welcomed Jewish refugees from the Thirty Years’ War (1618–1648) and the Cossack-​Polish War (1648–1657). To this day, one of the city’s nicknames is Mokum, a Yiddish term meaning “safe haven.” Amsterdam’s tolerance helped the city grow. By the 1660s, near the end of the Dutch Golden Age, Amsterdam’s population swelled to 200,000, making the city even more productive and creative.

In 1602, various rival Dutch trading companies joined forces to form the world’s first multinational corporation, headquartered in Amsterdam. The Dutch East India Company facilitated trade with Mughal India during the latter’s early industrialization. The company imported textiles and silks, provided shipping, and diversified into various other commercial activities. For its complexity, it has been labeled a proto-​conglomerate. The Dutch East India Company has also been called the prototype or forerunner of the modern corporation. The megacorporation was both a transcontinental employer and a trailblazer of foreign direct investment. The company’s formation was arguably a key episode in the dawn of modern capitalism. It must be noted that the company was, appallingly, also tied to the Dutch slave trade and colonial expansionism. Slavery was still common in many societies at the time, and the Dutch colonists were no exception.

While that was sadly nothing new, what was unprecedented was how Amsterdammers also traded stocks, housing the first modern stock exchange. The Dutch East India Company established the Amsterdam Stock Exchange in 1602 and became not only the first modern corporation, but also the first corporation in the world to be listed on a stock exchange.

Long-​distance trade by ship was a risky undertaking, and goods traveling from Asia to Europe were susceptible to loss in shipwrecks or theft by pirates. The stock exchange allowed the company to spread out the risks (as well as the dividends) of international trade among a broad pool of investors. When a voyage ended in a shipwreck, no single entity (companies or investors) had to bear the full cost of the loss. When an expedition was successful, many investors benefited. Shareholders soon gained the ability to transfer their shares to third parties, and by the mid-​17th century, the flourishing stock exchange inspired the formation of “trading clubs” around Amsterdam. Those clubs met in coffee shops or inns throughout the city to discuss transactions and cultivated a growing community of traders. However, the Netherlands was also, unfortunately, home to the first great speculative financial bubble.

Amsterdam grew increasingly prosperous, thanks to its role as a financial center and a key player in international trade. As the Dutch Republic became one of the world’s richest countries, the Dutch poured funds into science and art. During that era, the Dutch invented microbiology, discovered Saturn’s moon Titan, and invented the pendulum clock. The Dutch Golden Age also produced some of history’s most beloved painters, such as Rembrandt, who worked in Amsterdam; and Vermeer, who lived in Delft but who received artistic funding from entrepreneurs in Amsterdam, such as the silk trader Hendrick Sorgh.

Amsterdam’s renowned tolerance attracted cutting-​edge thinkers like the French philosopher René Descartes and the English “father of liberalism” John Locke, to take refuge there for a time. The city’s atmosphere also gave native Amsterdammers like the philosopher Baruch Spinoza the intellectual freedom to explore their ideas. Amsterdam was willing to print many controversial books that other European cities would not, incentivizing various intellectuals abroad—such as the English political philosopher Thomas Hobbes—to arrange to have their books printed in the Dutch city. That the city tolerated the views of thinkers as far removed from one another as Locke, an advocate of classical republicanism, and Hobbes, a believer in absolute monarchy, demonstrates the extent of Amsterdammers’ commitment to free speech and open debate.

By embracing diverse peoples and ideas, what began as a small fishing town became a prosperous global capital of philosophy, science, and art. Far-​ranging trade, new corporate structures, innovations in finance, and acceptance of intellectual and religious refugees all helped make Amsterdam successful. Given its myriad groundbreaking achievements and the underlying attitude of openness that helped enable them, 17th-​century Amsterdam can teach us much about how to foster progress in the present day. For more insights from history’s most innovative cities, I urge you to consider reading Centers of Progress, and to listen to my recent far-​ranging conversation with Paul Meany about the book on The Liberty Exchange.