Thursday, July 14, 2005

BOOKS: Pirates, Privateers, and Profit

Doing some genealogy research in the downtown library, I came across Pirates, Privateers, and Profits, by James Lydon, an interesting history book looking at the history and economics of privateering in colonial New York. While this is a scholarly work full of facts, figures, and footnotes -- not exactly light reading -- I nonetheless found it quite interesting. The book is peppered with colorful stories of adventures at sea, but what is even more interesting is the economist's perspective on the business venture of privateering, and the interplay between government policy and human economic behavior. It was also fascinating to learn how New York was the capital (pun intended) of the entrepeneurial spirit, even three centuries ago. The history of privateering and policy is explored, from the 16th century (the time of Sir Francis Drake and Queen Elizabeth) when privateers were celebrated and the government saw them as a no-cost way to harrass their enemies (while taking a share of the loot), to the 17th century, when the importance of trade was realized and the rising merchant class demanded regulation and control of piracy and privateering, and finally to the 18th century, when the government started to figure out more effective policies for regulating privateering as privateers become less criminal and more entrepeneurial. It's clear that men will follow profit like water flowing downhill, following the path of least resistance. When the taxes and other costs of "legitimate" privateering were near 60% of the gross, it should be no surprise that many opted for piracy instead. And when colonial governors were paid meagerly and judges were paid based on a percentage of privateer prizes, it should be no surprise that letters of marque (what authorized a privateer) were given out indiscriminately and judges turned a blind eye to all sorts of improprieties. It was only when the government radically cut down on the taxes at the same time as more strictly enforcing the regulation, that the regulation had much effect. Men generally preferred to be honest privateers over outlaw pirates risking the noose, if the net profits were at least competitive. And it was the New Yorkers who first realized that by encouraging privateers to come to their port, the whole city thrived. Thus during Queen Anne's War (1702-1713), New York agreed to waive admirality court fees in addition to the waiving of the royal tax, and successfully lured privateers from other colonies. By the time of King George's War (1739-1748), privateering was a full-on business venture, with most of New York's leading citizens investing shares in privateer expeditions. By the French and Indian War (1756-1763), the privateering market was nearly as sophisticated as today's stock or commodity markets. New York was full of privateer fever. Shares and futures in privateer expeditions were traded, as rumors came back from the Carribean about the various prizes and losses of each privateer vessel. Merchants and inn-keepers would sell provisions and services to sailors on credit, in exchange for a 25% share of their "take" at the end of their voyage. And when a returning privateer got stuck in a long drawn-out court case in clearing their prizes, enterprising bankers would buy sailor's shares for cash up front, but at a steep discount. (The whole scene reminded me of San Francisco during the dot-com boom, when startup fever was so pervasive that even landlords and suppliers sought stock options or warrants in the startups as a form of payment.) Though my 5x-great-grandfather (a privateer during the French and Indian War) was barely a footnote in an appendix, I really enjoyed reading about the milieu he lived in, as well as the lessons on economic and trade policy that are still relevant today.

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