Infinity has a price
William N. Goetzmann is the Edwin J. Beinecke Professor of Finance and Management Studies, and K. Geert Rouwenhorst is the Robert B. and Candice J. Haas Professor of Corporate Finance. Both work at the Yale School of Management.
One of Yale’s most intriguing investments is a 375-year-old “perpetual” Dutch bond that still pays interest. It was issued by the Hoogheemraadschap Lekdijk Bovendams, a semi-public organization charged with maintaining the dike along the Lek river in the Netherlands. The water authority was founded in 1323; its successor still operates today, in the province of Utrecht, as the Stichtse Rijnlanden. This is where Yale Beinecke curator Timothy Young showed up in 2015 to collect twelve years of past interest payments, amounting to 132 euros. The authority was glad to pay. There are few entities in the world that can claim such a long, continuous history of good credit. Only about five such bonds are known to have survived from the Dutch Golden Age. Yale’s was issued in 1648, the same month in which the Treaty of Munster ended the Eighty Years’ War by recognizing the sovereignty of the Dutch Republic. The Lekdijk bond is a reminder that in the sixteenth and seventeenth centuries, the Dutch fought a war on two fronts: a war of independence from Spain and a battle against water. The bond shows us exactly how the seventeenth-century Dutch were able to raise enough capital to build and maintain their remarkable system of dikes, canals, and polders (lands reclaimed from the water). In a sense, bonds like these made the modern Netherlands possible. A key financial innovation was the Hoogheemraadschap water companies. They were endowed with the extra-governmental power of taxation, and even the extraordinary right to mobilize citizens into “dike armies” to support the upkeep of the waterworks in case of an emergency. This novel organizational form was able to maintain the vital infrastructure of the dike system, irrespective of the vagaries of war, politics, and financial crises, and its power to tax insured that its bondholders would get paid. This allowed for the full payment of interest on the Yale bond—even in 1810, when the Netherlands defaulted on its sovereign obligations after the annexation by France.
The document is more than an interesting historical curio. The text reveals precisely the conditions under which the investors were willing to provide necessary capital. In the text, Johan van Hogenhouck, the Cameraer of Lekdijk Bovendams, promises to pay Niclaes de Meijer, the Canonick of Oudemunster, or his successors or assigns, 50 guilders per year in perpetuity in exchange for his 1,000-guilder capital contribution. Hogenhouck represented the company and its directors; de Meijer was the canon of one of Utrecht’s oldest churches. Although the Oudemunster church is now gone, its handsome sixteenth-century Canonick’s house is still standing. De Meijer appears to have bought the bond as a personal investment, and he likely regarded it as fairly safe. The five percent yield on the 1648 Lekdijk bond was similar to the yield on Dutch government securities at the time—suggesting that investors considered the promised payments of a Hoogheemraadschap to be as safe as those of the newly recognized nation.
