Maritime insurers not only assessed risk--they built markets and the new nation. During times of war and peace they formed a vital communication and information network. Their capital also helped to finance the war and the development of the American republic. We talk about their world with Hannah Farber, historian of the Revolution and early Republic, and her award-winning book Underwriters of the United States: How Insurance Shaped the American Founding.
Maritime insurers not only assessed risk--they built markets and the new nation. During times of war and peace they formed a vital communication and information network. Their capital also helped to finance the war and the development of the American republic. We talk about their world with Hannah Farber, historian of the Revolution and early Republic, and her award-winning book Underwriters of the United States: How Insurance Shaped the American Founding.
WEBVTT
00:01.084 --> 00:01.824
Hello, everyone.
00:01.864 --> 00:04.146
Welcome to the Revolution 250 podcast.
00:04.226 --> 00:05.046
I'm Bob Allison.
00:05.107 --> 00:07.088
I chair the Rev 250 advisory group.
00:07.648 --> 00:14.212
We are a consortium of about 70 groups in Massachusetts looking for ways to commemorate the beginnings of the American Revolution.
00:14.813 --> 00:16.914
And our guest today is Hannah Farber.
00:16.954 --> 00:20.796
Hannah Farber is an assistant professor of history at Columbia University.
00:21.377 --> 00:25.619
She's also the series, one of the series editors for American Beginnings.
00:25.699 --> 00:26.720
And we're going to talk about
00:27.247 --> 00:32.169
Hannah's book, Underwriters of the United States, How Insurance Shaped the American Founding.
00:32.229 --> 00:34.429
So thank you for joining us, Professor Barber.
00:34.870 --> 00:35.550
Thanks very much.
00:37.550 --> 00:46.433
So it's a book really about insurance, but it's also a book about the founding of the United States and how underwriters shaped the founding.
00:46.453 --> 00:50.815
So I guess my first question is, how did underwriters shape the founding of the United States?
00:52.079 --> 01:02.347
So there's little pieces of this story which have to do with how the business of ensuring maritime commerce contributed to the forming of the United States.
01:03.248 --> 01:21.343
And my book talks about that and also talks about this bigger vision in which the founding of the United States is itself a financial venture and that many of the people who are involved in underwriting commerce were the people who are most adept at managing
01:21.983 --> 01:33.088
risky bets and financial networks across the oceans and in mobilizing their resources to make a bet on the independent United States.
01:34.029 --> 01:42.673
And so in some ways the books of meditation on how patriotism and the hope for gain are deeply entangled from before
01:43.813 --> 01:44.894
the beginning of the United States.
01:44.974 --> 01:45.894
It's not saying that's good.
01:45.934 --> 01:46.914
It's not saying that's bad.
01:47.755 --> 01:53.737
But it's saying, look, here are some of the people who made bets on the United States and here's what's happened to them.
01:55.198 --> 01:55.718
That's right.
01:55.738 --> 01:58.499
That's really an interesting way of looking at it.
01:58.599 --> 02:04.502
But you also show how this whole world of underwriting or marine insurance grows out of the
02:05.741 --> 02:07.082
the English kind of system.
02:07.162 --> 02:11.383
And you have Lord Mansfield who's trying to reconcile common law to the law of merchants.
02:11.483 --> 02:20.667
And you have all these questions that come up during the revolution about financing voyages and benefiting from it.
02:20.707 --> 02:25.409
The privateering and the connection between privateering and the marine insurance world is also an interesting one.
02:26.369 --> 02:29.031
So many different areas we could go off on.
02:29.091 --> 02:32.974
I just wonder, and you've been doing a good job, by the way, clarifying it.
02:33.014 --> 02:46.223
I really like your introduction where you have someone walking into an office in Boston trying to ensure a voyage in 1800 and what that entails, making this all clear to someone who, as most people, doesn't really understand how this works.
02:49.465 --> 02:51.167
I don't know if that was a question or if...
02:54.028 --> 02:54.228
Right.
02:54.268 --> 03:06.935
Well, I had to introduce myself to this story as well, because as I was mentioning earlier, I became interested in insurance not because I came to my Ph.D.
03:06.955 --> 03:08.936
program with an interest in economic topics.
03:09.716 --> 03:15.299
I sort of was fascinated by American voyages on the high seas and
03:16.039 --> 03:38.979
ship captains and chases and all that um but of course as any grad student of this period discovers if you go and look at what sources actually remain from this period it's not it's not exactly master and commander it's a lot of stories about anxious letters about missing and damaged property and and what's going to happen about that property and
03:40.120 --> 03:44.403
there are an astonishing number of references to insurance in this paperwork.
03:44.883 --> 03:48.465
And that just struck me as silly at first, right?
03:48.485 --> 03:51.047
Didn't these people know they were having great adventures?
03:51.127 --> 03:53.208
Why were they talking about that so much?
03:54.189 --> 04:00.713
And then that gradually led me to a story in which it became clear that the
04:01.943 --> 04:11.167
that insurance was a risk management strategy that could not be separated from the vagaries of warfare.
04:11.267 --> 04:19.130
And that war calculations by the United States and by Britain during the Revolutionary War
04:20.991 --> 04:30.739
often had a lot to do with insurance, of course, because the end of war is not when one side of the war is utterly obliterated for the most part.
04:30.779 --> 04:35.342
It's when one side of the war thinks it's not worth it to start fighting anymore.
04:35.482 --> 04:37.644
And partly that's a financial situation.
04:38.959 --> 04:39.419
Right, it is.
04:39.780 --> 04:41.981
And then, yeah, go on.
04:42.482 --> 05:06.419
So some of my favorite anecdotes from the American Revolutionary War era in the book have to do with Americans proudly reporting in their newspapers that the British were reporting in their newspapers that British insurance rates have gone up because Americans are doing such a good job capturing British merchant vessels.
05:06.779 --> 05:07.359
You know, the...
05:08.240 --> 05:13.663
American Navy, such as it was, was in no way a match for the British Navy.
05:13.703 --> 05:22.729
What they could do is embarrass and annoy the British Navy as a whole and make everybody worried about British commerce.
05:22.929 --> 05:32.835
And, you know, sinking naval vessels is one thing, but making commerce too inconvenient or too expensive to proceed is...
05:33.795 --> 05:34.976
in some ways easier to do.
05:35.116 --> 05:41.080
Commerce operates on pretty narrow margins of success and profit and reputation matters a lot.
05:41.480 --> 05:48.305
And so I had this vivid picture in my mind of Americans reading these newspaper articles about British insurance rates.
05:48.345 --> 05:50.006
They don't know anything about that, right?
05:52.668 --> 05:59.674
But thinking to themselves, ha-ha, insurance rates in Britain have gone up.
05:59.795 --> 06:07.802
That gives some concrete way of assessing how they're doing in their war against the British Empire.
06:08.242 --> 06:09.143
What does that number mean?
06:09.183 --> 06:13.027
Well, I don't know exactly, but when the rates go up 25%, that sounds like a lot.
06:13.067 --> 06:14.508
That sounds like a lot of damage.
06:16.449 --> 06:17.169
Well, it is a lot.
06:17.429 --> 06:22.691
And then also you make the place after the war when Algiers essentially shuts off the Mediterranean.
06:22.711 --> 06:26.592
It's not shutting off the Mediterranean so much as raising insurance rates for Americans.
06:26.632 --> 06:31.393
So it would be prohibitively high for American merchants then to go somewhere else.
06:31.433 --> 06:38.235
So it's really an interesting network or interesting game that's going on with insurance rates.
06:38.295 --> 06:42.876
And you're right, I can't understand what these mean, but it does sound good if the rates have gone up 25%.
06:46.638 --> 06:47.159
Right.
06:47.199 --> 06:49.462
It's going to be it's going to be too costly.
06:49.542 --> 06:49.742
Right.
06:49.982 --> 07:02.698
So after American independence, Americans have to take advantage of one of these really outsized assets that their country has, which is the American merchant marine.
07:02.718 --> 07:03.559
They have shipbuilding.
07:05.540 --> 07:18.846
sailors, they have technological expertise, they have raw materials to ship out, so they have to find trade routes that they can re-establish or establish throughout the world as an independent nation.
07:21.607 --> 07:28.069
The question is not whether American ships can sail all over the world, which they can do, the question is can they do that profitably?
07:30.130 --> 07:36.251
managing the risk of a failed voyage is something that every merchant chipper has to think about.
07:36.331 --> 07:39.612
They don't always buy insurance, but most of them want to.
07:40.112 --> 07:46.013
And so the cost of insurance then becomes a major consideration.
07:46.033 --> 07:53.675
So another thing I have in the book is these lists of insurance rates that are published in American seaport towns.
07:54.955 --> 07:59.539
for voyages to various destinations in the world where Americans might want to ship their cargo.
07:59.559 --> 08:10.707
And what I argue in the book is that this is a little bit of a mental map for Americans of how safe their vessels are in the world and ultimately how safe their economy is.
08:11.147 --> 08:24.902
If they can ship goods to a variety of destinations at a cost effective rate, that must mean that their trade deals are working, that their ships are safe on the oceans, that they are not going to be attacked.
08:25.703 --> 08:31.910
The sort of whole musical chairs world of starting up an independent economy is proceeding as it needs to.
08:34.056 --> 08:48.494
Yeah, and you have Robert Morris who says that Americans are still able to insure via London, even immediately after, maybe even during the revolution, saying that the British love the high premiums and will insure anything for money.
08:49.355 --> 08:54.277
you do have these interesting patterns or interesting networks.
08:54.297 --> 09:09.103
I don't know if someone's going to send a cargo to Barbados as opposed to Bermuda because it's a 1 percent difference in the premium, but it does map out for us where are safe areas to go, what is essentially the cost of doing business.
09:10.998 --> 09:15.542
You know, Morris is probably one figure who emerges in the book that most of us have heard of.
09:15.582 --> 09:23.469
And then there are other really interesting characters like Blodgett and Samuel Blodgett, who he has great stories about Blodgett.
09:23.649 --> 09:26.512
I mean, he is someone I was interested in hearing more about.
09:29.479 --> 09:47.390
There are a number of, I guess, entrepreneur type figures in this book and who I found myself charmed by sort of in spite of myself where, you know, it's just this age where there are certain people who have a nose for a good hustle and sort of whatever you think.
09:48.010 --> 09:51.392
Wherever you think there's money to be made, here pops up your friend again.
09:51.432 --> 09:52.812
He's trying this, he's trying that.
09:52.892 --> 09:53.593
That's right.
09:53.633 --> 09:54.053
Yeah, yeah.
09:54.533 --> 10:07.299
So after independence, Philadelphia takes shape as the city where you have a lot of shipbuilding, you have a lot of commerce, you have the political leadership of the country for a while.
10:08.740 --> 10:23.992
And so when you have this confluence of like ocean commerce and political leadership, it's like these two streams, you know, the nature documentaries when it's like the two underwater streams go together and all of a sudden there's like a lot of marine life that's, it's exploded into existence.
10:24.493 --> 10:28.836
And it's, it's, it's this node where politics and money come together and it's,
10:30.497 --> 10:40.124
some of these itinerant merchants like Samuel Oblige show up there and I get the sense that what a lot of people are looking for in this time is patriotic hustles.
10:40.524 --> 10:45.928
It's ways to take advantage of the fact that there is political leadership and
10:47.469 --> 10:49.310
There are bets to be made.
10:49.350 --> 10:50.391
There's money to be made.
10:50.851 --> 10:55.734
So somebody like Robert Morris comes out of the Philadelphia merchant world.
10:55.855 --> 10:57.856
He is an underwriter.
10:58.917 --> 11:06.802
Samuel Blodgett has this idea that he's going to form the first joint stock American insurance company after independence.
11:08.454 --> 11:15.776
insurance is this one vehicle for the pooling of risks that starts to seem appealing to a lot of people.
11:15.796 --> 11:24.599
And in a way, more appealing than banking, because banking has a little bit of an unsavory reputation in the 18th century.
11:25.359 --> 11:29.080
People are sort of familiar with the idea of the Bank of England as this
11:29.860 --> 11:32.023
sinister political influence.
11:33.805 --> 11:35.867
Bankers are sort of these conniving figures.
11:35.907 --> 11:36.868
Well, what did you expect?
11:36.888 --> 11:37.849
They said, I'm being positive money.
11:38.269 --> 11:44.176
Now, one of the big arguments in the book is that insurance in a way is extremely similar to banking.
11:44.296 --> 11:46.879
And in the early United States,
11:47.419 --> 11:50.964
Insurers and bankers are very much overlapping groups of people.
11:51.024 --> 11:52.165
Lots of people do both.
11:52.626 --> 11:56.611
The businesses themselves are very similar.
11:56.631 --> 12:03.299
Insurance companies and banking companies are ways of pooling big sums of capital.
12:04.463 --> 12:06.685
including various things with that capital.
12:07.165 --> 12:13.689
But insurance has this way of staying out of the public eye that banking is just not as good at.
12:13.829 --> 12:21.354
Insurance, as I argue a couple of times in the book, insurance has these two ways that it can portray itself.
12:21.895 --> 12:30.801
And the first is that insurance, and this is the insurance of merchant vessels, the insurance of commerce, is really just this little private business
12:31.181 --> 12:33.562
activity that merchants do for each other.
12:33.582 --> 12:36.224
And that has a grain of truth to it.
12:37.164 --> 12:40.266
In order to ensure commerce, you have to understand commerce.
12:40.286 --> 12:46.469
You have to know what you're doing so that you don't get wiped out by your customers taking advantage of you.
12:47.649 --> 12:54.574
And so sometimes insurers argue, especially when they're doing very well for themselves, they say, you know, just just leave us alone.
12:54.614 --> 12:57.756
You know, we're not a big sinister force in this company.
12:57.796 --> 13:00.277
We're just this tool that supports merchant commerce.
13:00.297 --> 13:03.399
And, you know, the farmers need the merchants to sell their stuff.
13:03.419 --> 13:04.400
So, yeah, yeah, yeah.
13:05.240 --> 13:06.261
Just leave us alone.
13:06.301 --> 13:08.202
We're calculating our own risks.
13:09.223 --> 13:25.113
And then the other point of view that insurers try to share sometimes is that their national infrastructure, that as the backers of American merchants, they are backers of the nation as a whole.
13:25.173 --> 13:27.475
Their safety is the safety of the nation as a whole.
13:28.616 --> 13:34.860
They tend to make this kind of argument when the risks of the oceans are getting too hot for them and they want
13:35.220 --> 13:36.582
you know, more naval protection.
13:36.602 --> 13:42.888
They want more government resources devoted to supporting them to reduce insurance rates.
13:44.169 --> 13:50.015
So on these occasions, they say, you know, we are the nation.
13:50.075 --> 13:58.023
So they go back and forth between saying they're of private merchant concerns and saying they're of concern to everyone in the whole nation.
13:59.099 --> 13:59.279
Right.
13:59.739 --> 14:08.505
I mean, you do make this point really well about this kind of duality that on the one hand, they're taking noble and patriotic risks.
14:08.546 --> 14:10.907
On the other hand, are they actually being all self-serving?
14:10.967 --> 14:14.269
I mean, it's benefiting them and benefiting the nation is benefiting them.
14:14.309 --> 14:19.273
I guess that's a question we always have about the business world.
14:20.634 --> 14:22.735
When you said, though, that the banks and the
14:24.301 --> 14:29.846
You have two great images of the first bank of the United States in Philadelphia and then the insurance headquarters.
14:29.986 --> 14:33.009
One is a very grand building meant to make a public statement.
14:33.029 --> 14:37.592
The other is kind of on a side, it seems like it's on a side street and this is the insurance office.
14:37.632 --> 14:38.793
So it's the insurers,
14:39.574 --> 15:05.670
are they intentionally trying to stay out of the public eye or is it just that they have uh and the bank the bankers are not uh it's um i mean your book raises so many interesting issues uh it's a wonder no one has written more about the world of insurance other than that why would anyone write about the world of insurance unless you see how important it is we're talking with hannah farber from columbia university a lot of the um
15:07.811 --> 15:13.173
So early American insurance does not leave a very big footprint, certainly not in the city landscape.
15:13.673 --> 15:27.857
And if you go to somewhere like Philadelphia, the first big insurance buildings come from the mid-19th century, from fire and life insurance, which are businesses that appeal more directly to the public.
15:28.578 --> 15:45.115
um and need to advertise their stability to the public then they need to be seen in the city landscape what's really striking about this early age of marine insurance the insurance of commerce is that they don't have to make this kind of display and that shows you how much power in this era is um
15:47.738 --> 15:51.600
is lodged in places that aren't exactly visible.
15:52.000 --> 15:54.122
The power comes from their expertise.
15:54.262 --> 15:57.564
It comes from the years of training that people have in these counting houses.
15:58.044 --> 16:06.110
It comes from these long volumes of the laws of merchants they purchase and point to to explain how they're doing the insurance business correctly.
16:06.570 --> 16:07.871
Their power comes from math.
16:07.951 --> 16:09.072
It comes from capital.
16:09.092 --> 16:11.353
It comes from ships on the ocean.
16:12.414 --> 16:16.437
They don't have to route this power through
16:17.237 --> 16:18.758
you know, through the public's eyes.
16:19.879 --> 16:25.783
And I don't mean this to mean it's some sort of like giant sinister force working on the country that we don't know anything about.
16:25.803 --> 16:35.429
I think people do see a little bit of it when, again, for example, people become very ambivalent about Robert Morris's increasing prominence in the Revolutionary War.
16:35.489 --> 16:46.056
And there are people who are really writing to each other like, you know, my God, you know, one of these Philadelphia merchant finance guys, our country's going to end up in harm to this guy.
16:47.177 --> 16:49.179
But it's like, how else are we going to do it?
16:52.462 --> 16:53.563
He's got the expertise.
16:53.603 --> 16:54.965
He's got the connections.
16:56.727 --> 17:02.192
Robert Morris gets the French and Dutch governments to literally underwrite U.S.
17:02.232 --> 17:03.974
government bonds in the modern sense.
17:04.054 --> 17:07.638
In other words, the first time they're trying to sell U.S.
17:07.978 --> 17:08.979
debt overseas...
17:09.880 --> 17:11.081
Morris is taking that debt.
17:11.121 --> 17:20.406
He's convincing foreign governments to take the risk of their non-sale, sort of back the sale of American debt to the overseas public.
17:20.786 --> 17:30.172
So Morris, somebody like that, is operating with a real sense of the project of underwriting, merchant underwriting, government underwriting.
17:30.772 --> 17:36.195
for him, you know, these vocabularies and concepts are sort of interconnected.
17:36.215 --> 17:59.006
And one of the ways that I work in this book that I think sets it apart from a stricter economic approach is I'm saying like, look, people in this time period don't use terms in the really strict and formal senses that economists use when they're talking about, when they're talking about underwriting or when they're talking about a company, you know, for...
18:00.186 --> 18:05.393
For economists and for many purposes, it makes a lot of difference if your company is a joint stock company.
18:05.413 --> 18:14.986
Have you formally pulled your assets or are you like a bunch of guys who have your names on a piece of paper and are working together in less formal terms?
18:16.207 --> 18:27.889
It's because the truth is that there's a lot of coordinated activity among American merchants that's not captured in the formal joint stock corporation, which takes a while to start up.
18:28.409 --> 18:40.931
So part of what I'm trying to unpack is that coordinated activity that American merchants take that's not visible immediately through the corporation.
18:40.951 --> 18:43.992
In fact, let me say it another way, there's sort of poor
18:45.301 --> 19:13.236
When American merchants start to found joint stock insurance companies in the 1790s, 1800s, 1810s, and they do with great speed and enthusiasm, they're taking this pre-existing expertise in merchant commerce that they have and in sort of investment that they have, and they're taking advantage of this new financial landscape that's opening up in the independent United States when there are, for example, government securities to buy.
19:14.329 --> 19:19.552
And they're taking advantage of that, they're taking advantage of the states that are willing to give them charters.
19:19.572 --> 19:24.094
So they're sort of pouring this expertise into new vessels.
19:24.634 --> 19:40.781
But the reason that American insurance companies come into existence so rapidly and so successfully in the 1790s and 1800s is because they're building on top of this existing financial infrastructure, this knowledge infrastructure,
19:41.321 --> 19:44.965
that Americans already had in the period of the Revolutionary War.
19:45.346 --> 19:49.530
And then people like Blodgett, the hustlers, the entrepreneurs, they're seizing the opportunity.
19:49.570 --> 19:58.260
They're saying, oh, we can make these ventures even bigger by creating corporate forums, by allowing members of the public to buy stock in our company.
19:58.560 --> 20:02.004
Then we'll have more capital to work with, more capital to invest.
20:03.224 --> 20:16.558
Another thing that I found in this book, then, is that there are huge numbers of fire insurance companies that get started in the early 19th century, but they're doing sort of even less fire insuring business by far than...
20:18.400 --> 20:30.192
Like, at least merchant commerce insurance involves some big numbers of... Like, on the premiums, insurance policies changing.
20:30.212 --> 20:31.893
Insurance policies are expensive.
20:32.374 --> 20:36.458
One voyage, you know, 10% or 20% insurance policy.
20:36.578 --> 20:37.339
You know, we're talking...
20:37.819 --> 20:41.302
hundreds of pounds, hundreds of dollars are changing hands multiple times a year.
20:41.843 --> 20:47.068
Fire insurance policy is like a couple of dollars for a seven year policy.
20:47.708 --> 20:56.656
So fire insurance companies are really more just like investment vehicles and that story remains to be told as well.
20:58.338 --> 21:03.403
But the marine insurance companies are building on this genuinely high value business that they're involved in.
21:03.923 --> 21:09.506
to create these big capital pools that they then invest in government securities and in state banks.
21:10.047 --> 21:24.655
So the financial landscape that I try to show is this sort of three-part landscape with government securities, bank stocks, and insurance company stocks that are making up for the most part the capital markets of the early United States.
21:25.902 --> 21:32.388
Wow, that's a brilliant story Hannah Farber has told in Underwriters of the United States.
21:32.428 --> 21:40.895
I'm just reminded too, Franklin started a fire insurance plan in Philadelphia in the early, mid 1700s, and people stopped buying insurance because there hadn't been any fires.
21:41.315 --> 21:43.397
And then suddenly there were, people saw the need for this.
21:44.058 --> 21:48.101
But whereas with a ship, I mean, you never know what's going to happen to it.
21:48.281 --> 21:53.045
I know if you're, there hasn't been a fire in a long time or a hurricane or something else, you know, why should I,
21:53.786 --> 21:57.410
insure against it, whereas a voyage, you never do know what's going to happen.
21:58.431 --> 21:59.292
It's true.
22:00.673 --> 22:04.137
You know something is probably going to happen.
22:04.177 --> 22:14.188
So one of the dramatic differences that I track in the book is the difference between war and peacetime insurance premiums for merchant voyages because
22:14.688 --> 22:20.031
In peacetime, you can get across the Atlantic with just a couple of percent of an insurance policy.
22:20.151 --> 22:24.933
But at the height of war, if you're doing something very risky, your insurance premium could be 20%, 40%, 60%.
22:25.293 --> 22:33.398
Numbers that don't even make sense today, if you're just looking at it, you're like, how could this premium be so high?
22:33.438 --> 22:40.641
But you have to think of it that the merchant is expecting to reap a bonanza if the voyage comes in.
22:40.661 --> 22:40.861
If you're...
22:42.282 --> 22:49.089
ship comes into a war-starved port and you can sell your goods for fantastically high prices.
22:49.550 --> 22:56.537
Now, that puts the merchant under suspicion of price gouging, which then becomes another revolutionary concern.
22:56.717 --> 22:59.060
Merchants are always getting arrested or shoved or...
23:02.143 --> 23:04.866
for price gouging during the Revolutionary War.
23:05.747 --> 23:18.501
So one of the little things that I go to in the book is how merchants in Philadelphia during the Revolutionary War pointed their insurance costs to explain why the prices of their goods are so high.
23:18.761 --> 23:21.144
They're saying, oh, look, we didn't
23:21.624 --> 23:25.469
You know, we're not price gouging you out of greed, oh, citizens of Philadelphia.
23:26.670 --> 23:33.177
We are just trying to, you know, break even or make enough to keep selling you goods.
23:34.179 --> 23:41.066
Part of what's the great part of what's expensive is the insurance that we have to pay to insure the goods coming in.
23:41.667 --> 23:46.349
Now, the actual math that I went into is too complicated to get into here.
23:46.389 --> 23:59.036
And in fact, there's a lovely actuary named James Lynch who wrote a follow-up piece about this that I can send you if you'd like, about why insurance premiums during wartime become so high.
23:59.056 --> 23:59.836
But one...
24:02.503 --> 24:11.132
thing that I will point out that these merchants were not so eager to mention is that a lot of them were shareholders in the local insurance companies.
24:11.152 --> 24:17.358
So they were hedging their own risks, not only by buying insurance, but then by holding shares in local insurance companies.
24:18.179 --> 24:21.902
And those insurance companies profited a great deal
24:23.624 --> 24:27.565
during the French Revolutionary Wars and the Napoleonic Wars.
24:28.365 --> 24:36.047
Because it was this ongoing sort of period of uncertainty where American vessels were able to pick up new trade routes.
24:36.067 --> 24:38.388
The British and French are distracted with each other.
24:39.408 --> 24:43.469
There's immense demand for global commerce to continue.
24:43.529 --> 24:46.850
So Americans can get in there, but it's risky, right?
24:46.890 --> 24:49.431
You're sort of making political enemies everywhere you go.
24:50.311 --> 24:51.712
You know, it's hard enough.
24:51.812 --> 24:59.795
I mean, Bob, you must have taught undergrads this period time and time again and trying to explain to them who's at war with who, when, and why, and for how long.
24:59.815 --> 25:00.495
That's right.
25:00.555 --> 25:01.456
Yeah, yeah, yeah.
25:01.796 --> 25:02.616
And then what it means.
25:03.997 --> 25:04.177
Right.
25:04.257 --> 25:04.857
And what it means.
25:04.877 --> 25:06.678
It's not those that French are sending an army.
25:06.738 --> 25:08.598
It's they're capturing American ships.
25:08.618 --> 25:09.099
Right.
25:09.159 --> 25:11.019
It's really hard to explain to students.
25:11.219 --> 25:17.022
And, you know, and then if you factor in how long it takes news of war or peace to get from place to place.
25:17.062 --> 25:17.202
Right.
25:17.882 --> 25:25.028
where the changing policies of the British Empire and what counts as landing goods in America versus what doesn't count.
25:25.548 --> 25:30.152
It's like a nightmare to explain, but the bottom line is that it's risky.
25:30.797 --> 25:42.601
And so if you're a merchant and you're trying to keep up on the news, but you're like, the bottom line here is that this business that I'm trying to do is high reward potentially, but it is risky.
25:43.161 --> 25:44.881
I need to buy some insurance.
25:45.202 --> 25:52.004
So this is the environment in which the business of insurance really blossoms.
25:53.724 --> 25:58.006
It is the environment when a lot of people are eager to invest in insurance companies.
26:00.046 --> 26:02.288
You have, again, these two sides of the same coin.
26:02.328 --> 26:07.110
In the domestic scene, you have new American states that are able to charge corporations.
26:07.470 --> 26:12.633
You have federal securities that new corporations are able to buy and reap returns off of.
26:13.133 --> 26:21.038
Internationally, you have these two decades of global uncertainty and high-risk, high-reward commerce.
26:21.418 --> 26:28.622
This is just the perfect microclimate for insurance to grow.
26:29.182 --> 26:51.512
and so by 1810 you have um like in in the british parliament parliament they're having hearings about their insurance dilemmas like they've got their own problems in the british sector but they're going what's happened to our american commerce you know there was no americans resumed buying commerce from britain after the war it's not like political and prevented that
26:51.932 --> 26:59.418
But by 1810, people or Lloyds are estimating that Americans are buying 95% of their insurance at home.
27:00.338 --> 27:02.260
And people in Parliament are going, what happened?
27:02.480 --> 27:04.341
How did we lose all of this business?
27:05.062 --> 27:08.404
But it wasn't anything that the British were doing wrong necessarily.
27:08.484 --> 27:11.787
I mean, the political conflict is part of the story.
27:12.187 --> 27:19.072
But part of it is that there's this climate of domestic finance and international uncertainty happening.
27:19.492 --> 27:23.854
that allows insurance companies to really just grow gangbusters.
27:24.274 --> 27:33.918
So by the time you have the War of 1812 breaking out, strictly speaking, by the time you have actual formal war, the sector's already really in place.
27:34.679 --> 27:40.441
And one of the things I talk about in the book is that insurance companies make different decisions when the War of 1812 breaks out.
27:40.781 --> 27:46.344
Some stop insuring entirely, some continue insuring little routes that they think are
27:46.984 --> 27:47.505
safe enough.
27:47.925 --> 27:51.468
Some of them insured risky voyages legally.
27:51.488 --> 27:53.729
Some of them insured risky voyages illegally.
27:53.749 --> 27:56.992
They go in all kinds of directions, but the sector is already in place.
27:57.881 --> 27:58.622
Well, it's interesting.
27:58.962 --> 28:10.109
And you have Timothy Pickering in the debate over the embargo of 1808 pointing to use the Salem insurance company's rates to show that commerce isn't actually that risky.
28:10.169 --> 28:13.031
The federal government wants to shut it all down because of the high risk.
28:13.091 --> 28:27.681
And he's pointing out that in Salem, they're insuring voyages, which indicates that the merchants or at least the underwriters don't see that higher risk, that it's impossible to insure a cargo heading for one of these places that either Napoleon or the British are blockading.
28:28.622 --> 28:28.822
Right.
28:28.942 --> 28:45.701
So this is a big fight between insurance world and the political world in very broad terms, where the insurers are then saying, you know, let us decide what commerce is safe for Americans to engage in.
28:45.721 --> 28:47.103
You know, we we.
28:48.052 --> 28:51.294
we signal that safety to merchants by our insurance rates.
28:51.354 --> 28:54.396
Insurance companies are run by the most expert American merchants.
28:54.916 --> 28:57.558
And if they think a route is too risky, they just won't allow it.
28:57.578 --> 29:02.221
And if they think it is not too risky, then let us do it and try to make money.
29:02.761 --> 29:07.524
So this is this sort of ongoing tension between the insurance business,
29:09.225 --> 29:12.626
between insurance as a business and the new U.S.
29:12.646 --> 29:23.988
state, which is like insurance both takes advantage of having a host state and also sometimes wants to work against it, wants to work around it, wants to make its own decision.
29:25.069 --> 29:34.831
And again, in this early period where, as I mentioned earlier, insurance is a little bit invisible to the public, but insurers are the premier
29:35.430 --> 29:38.855
information gatherers about American overseas commerce.
29:39.356 --> 29:40.578
They're the ones who know.
29:40.598 --> 29:49.532
How would the federal government know how many ships are being lost to the British or the French or some random Danes or some pirates hiding behind a rock?
29:49.813 --> 29:50.414
They don't know.
29:51.614 --> 29:56.697
They have to write to the insurance companies in each port and say, what are the major insurance companies here?
29:56.717 --> 29:58.238
How many routes are you insuring?
29:58.498 --> 29:59.438
Who's getting lost?
29:59.518 --> 30:00.118
What's happening?
30:00.138 --> 30:06.161
So insurers have a great deal of power to steer public affairs that way.
30:06.762 --> 30:12.384
And when I was finishing this book, one of the critiques that I got, which was totally fair, was that
30:14.803 --> 30:18.606
you're saying insurance companies are so powerful, but look, the embargo happened anyway.
30:18.626 --> 30:20.847
The War of 1812 happened anyway.
30:22.008 --> 30:24.709
Doesn't that show that the insurers didn't get their way?
30:25.169 --> 30:27.851
And the answer is yes, but not for very long.
30:30.533 --> 30:36.836
The height of the embargo and the heart of trade restrictions during the War of 1812 did not last very long.
30:36.896 --> 30:39.118
And if you study this in detail, you know that
30:40.714 --> 30:50.678
that within a year or a little more, people's willpower to follow trade restrictions, never being that great in the first place, is already starting to crumble.
30:51.658 --> 31:02.582
And so there is a tremendous amount of pressure to return to this regime in which merchants are making their own decisions about what they will and won't tolerate for trade.
31:04.063 --> 31:04.663
That's a good point.
31:04.863 --> 31:09.905
We're talking with Hannah Farber from Columbia University about her book Underwriters of the United States.
31:11.002 --> 31:20.286
And I was really intrigued early on in the book when you were talking actually about the background and the development of insurance actually in England and really an interesting story.
31:20.466 --> 31:31.111
But the things that could be insured against and one was a rat infestation on a ship or damage caused by rats and the argument the insurance company made was you should have had a better cat.
31:33.956 --> 31:47.799
So insurance is a notoriously complicated business to the extent that it's almost a joke even in British legal settings themselves.
31:47.859 --> 31:51.979
So there was a case that I was reading about.
31:51.999 --> 32:00.001
I think this was from the Huntington Library where this guy is corresponding with his insurer in London, and they're talking about a case where –
32:02.247 --> 32:06.310
People are arguing whose fault it was that some weed on board got damaged.
32:06.571 --> 32:10.254
Is it a covered sort of damage or a non-covered sort of damage?
32:10.754 --> 32:20.382
And they said that the ship captain brought his cat in a bag into the courtroom and dropped it down on the table and said, I have a perfectly good cat right here.
32:20.843 --> 32:23.065
It's not my fault that the weed was damaged.
32:23.085 --> 32:25.847
It didn't happen on this cat's watch.
32:25.867 --> 32:26.427
Yeah.
32:28.243 --> 32:33.791
So everybody had a sort of sense that this was a ludicrously complicated business.
32:34.572 --> 32:41.722
And there was this period in the mid late 18th century when Lord Mansfield is trying to sort of rationalize
32:43.724 --> 32:47.726
the way that English law treats commercial issues.
32:48.466 --> 32:51.828
And that has benefits for a lot of people.
32:52.708 --> 33:00.152
If merchants are willing to bring more cases to court, then a lot of British lawyers are gonna make more money.
33:00.973 --> 33:11.648
There are clearer rules around commerce that presumably will make more rational actors willing to invest in commercial voyages.
33:11.908 --> 33:15.172
So there just seem to be a lot of benefits of this reconciliation.
33:16.714 --> 33:23.616
But what's striking is that depending on their politics, scholars talk about this reconciliation in a couple of different ways.
33:24.397 --> 33:32.799
Some talk about, some talk about it sort of as if commerce is like coming under the boot of the law or like the merchants are coming in.
33:33.079 --> 33:37.120
They're allowing, you know, governments have gotten more powerful in the early modern period.
33:37.901 --> 33:41.382
Like merchants are going to come in and they're like, let the state regulate for them.
33:42.422 --> 33:58.990
The other way of thinking about it is that it's more like a modern case of regulatory capture, where this is what I see in the United States case is when American lawyers and judges, like the first American lawyers and judges are going, what should the laws be about commercial issues?
33:59.670 --> 34:00.570
Who do they go to?
34:00.610 --> 34:01.631
They go to the merchants.
34:01.971 --> 34:03.332
They go to the top merchants.
34:03.692 --> 34:05.152
Who are the top merchants they go to?
34:05.452 --> 34:06.233
The insurers.
34:07.033 --> 34:21.878
And so the first American law treatises on insurance have these elaborate acknowledgements of insurance company presidents who are explaining to these lawyers what insurance law should look like.
34:21.898 --> 34:28.080
So if you look at it from this perspective, it's like the merchants made the law that they wanted.
34:28.120 --> 34:30.701
They didn't come under the boot of the state at all.
34:30.881 --> 34:32.862
They made the state that they needed it to be.
34:33.603 --> 34:38.030
I'm not really invested in either of those two perspectives.
34:38.191 --> 34:40.335
I mean, in some ways what
34:42.320 --> 35:00.908
What I think is interesting is the ways in which war and the unpredictability of human experience continues to scramble all of these grand narratives and how much still takes place outside of the law and how much cannot be predicted or controlled.
35:04.029 --> 35:04.670
Insurance.
35:05.919 --> 35:11.565
is a business of risk, but it's also this business of uncertainty, of the unpredictable.
35:12.166 --> 35:20.755
And one of the most wonderful things about publishing this book has been having conversations with people in the insurance business about this, where they have
35:21.175 --> 35:43.308
you know a lot of them have sort of been taught that insurance is this like really regulated strict predictable business but um the first they go in the insurance business you know the more they know you know maritime law is still this quirky um world that only a few lawyers and judges know about um but it's still highly relevant i mean we're we're
35:44.246 --> 35:47.749
you know, talking now about Yemeni pirates, right?
35:48.690 --> 35:49.231
Right.
35:49.251 --> 35:49.871
Yeah.
35:49.911 --> 35:56.718
News and like how is this going to affect European trade for the next however many years.
35:57.278 --> 36:00.321
So that unpredictability, it doesn't go away.
36:00.561 --> 36:02.803
Ocean commerce doesn't go away.
36:03.404 --> 36:04.765
You never really know what's coming.
36:05.426 --> 36:08.048
And so insurance is not just this business of,
36:08.969 --> 36:18.536
of regularity and predictability, it also has this like giant open door to the world of political uncertainty.
36:18.556 --> 36:23.000
And that's just part of living in the world of human experience.
36:24.025 --> 36:24.225
Right.
36:24.626 --> 36:25.066
That's true.
36:25.526 --> 36:32.573
And, you know, Henry Lawrence received a proposal to start a public insurance company back in, what, 1777 or 78.
36:32.793 --> 36:35.735
And there were similar proposals.
36:35.816 --> 36:38.158
But it's a fascinating story.
36:38.178 --> 36:39.479
I mean, we could go on all day.
36:39.619 --> 36:42.722
I never thought I would say this, go on all day talking about insurance.
36:44.163 --> 36:46.305
Anything else we should talk about, Hannah, before we let you go?
36:48.710 --> 36:53.151
I'm so glad that you found the project interesting.
36:53.171 --> 37:14.599
I have had a wonderful time writing it and talking about it, and I just urge all of those listeners, anything that you think is too boring to think about, try to stop and think about why that is and what story might be hidden behind the world of
37:16.775 --> 37:26.357
what's supposedly dry and dull and routine, because if you turn a historianly eye on a lot of things, there's more there than you think.
37:27.518 --> 37:29.098
Right, that's true, very true.
37:29.498 --> 37:42.141
And of course, you and I also were on the Fox Nation Tea Party piece, and again, you didn't really talk much about insurance on that, but certainly the maritime world is part of that big story we just commemorated here in Boston.
37:42.867 --> 37:43.087
Right.
37:43.187 --> 37:51.714
There's this big conversation about who is responsible for the destroyed tea in Boston Harbor.
37:52.195 --> 37:58.059
And this is an enormously political topic of this idea that Boston is going to pay for this tea.
37:58.600 --> 37:59.380
What does that mean?
37:59.961 --> 38:00.361
Pay when?
38:03.423 --> 38:04.944
Who's holding the bag in the meantime?
38:04.964 --> 38:16.232
Who is responsible for the cost of that political rift, which are sort of immediate and palpable?
38:16.853 --> 38:25.979
There's all sorts of high-flying political rhetoric going around, but the truth is there's a lot of destroyed teas sitting in the harbor.
38:26.219 --> 38:27.180
Who's going to pay for that?
38:28.401 --> 38:30.062
That's the insurance side of that story.
38:32.246 --> 38:40.429
We've been talking with Hannah Farber from Columbia University, author of Underwriters of the United States, How Insurance Shaped the American Founding.
38:41.196 --> 38:44.618
and now working on a book about civil litigation in early America.
38:45.698 --> 38:47.059
So it's been great talking to you, Hannah.
38:47.139 --> 38:54.303
Thank you for joining us, and I want to thank Jonathan Lane, our producer, and also, you know, we have listeners all around.
38:54.323 --> 39:08.890
We thought we'd have a handful of our friends listening in when we started these podcasts about two years ago, but we actually have friends tuning in regularly all over, and so this week, if you're in one of these places, send Jonathan Lane an email, jlane at revolution250.org, and he'll send you
39:09.528 --> 39:32.415
some of our revolution 250 commemorative gear so this week thanks to folks in new york city and salem in massachusetts and salem in virginia as well as marblehead massachusetts you can't mention salem without mentioning marblehead memphis tennessee southampton in england and southampton in pennsylvania and west by fleet in great britain and
39:32.975 --> 39:35.936
Philadelphia, and in Connecticut, Wethersfield.
39:36.056 --> 39:51.083
Wethersfield comes up in your book, and Stamford in Connecticut, Ann Arbor and Escanaba, Michigan, as well as Madison Heights, Lithia, Florida, Franklin, Tennessee, Houston, and Sauk Center, Minnesota, and all places between and beyond.
39:51.123 --> 39:53.904
Thanks for joining us, and thank you again to Hannah Farber.
39:55.064 --> 39:56.865
Now we'll be piped out on the road to Boston.