Abstract
In the first decades after declaring independence, the American ship of state managed to thread a path through dangerous reefs. Improbably, the early United States’ military and diplomatic efforts held off a much more powerful and well-resourced enemy, and industries and institutions took root which set the new nation on a path of economic prosperity. Hannah Farber's first monograph offers a fresh reading of early American political economy by considering a set of actors who thus far have slipped below the radar: merchant underwriters and insurance corporations. Her goal is to uncover the hidden sources and mechanisms of insurers’ influence in order to demonstrate that ‘marine insurers underwrote the establishment of the United States’ (13). She also investigates the processes that later shaped popular memory of the American Revolution and erased insurance underwriters from the story, shielding the founding generation from accusations that private financial interests had influenced their decisions and, at the same time, allowing the insurance business to redefine itself as apolitical, objective and, ultimately, ‘boring’ (234).
The book's seven chapters straddle the eighteenth and nineteenth centuries, taking us up to the beginning of the American Civil War. Farber has an appealing and inimitable prose style. General readers or scholars who would not usually pick up a book on economic history or the history of political economy will be pleased to find that the text is free of jargon and enriched by stories from the colourful careers of individuals like Robert Morris, Alexander Hamilton and Jacob Barker. At the same time, the specialist will find a guiding map to the literature on the history of insurance in the comprehensive and helpful endnotes.
Farber is willing to take risks in her writing. In the prologue, she employs a novel narrative strategy by addressing her readers directly and describing the steps and the calculations involved in our (or this second-person narrator's) purchase of a marine insurance policy at the offices of a Boston corporation. In these first pages, Farber supersedes a major challenge of writing about insurance in a pre-industrial context: she strikes the right balance between demystifying the subject – offering reassurances that the ability to produce an exegesis of a twenty-first-century health or car insurance policy will not be a prerequisite for following the book's arguments – and rendering early insurance markets a little strange, disarming modern readers of some of their preconceptions.
When Farber lifts the curtain, it is 1800, and the future of the newly independent United States is uncertain. The institutions of the federal state and national finance are subjects of heated debate. It is not clear what access to global trade networks treaties or the vicissitudes of economic opportunity will permit American citizens. The business world is characteristically information-poor. Underwriters cannot count on either the security of their investments in United States treasury bonds or reliable statistics about accidents at sea to guarantee their success. Marine insurance underwriters were the unequalled experts in assessing risk in this troubled time. Employing a formula that draws on the distinction between measurable risk and uncertainty developed by the economist Frank Knight, Farber writes that marine insurance was ‘a business of uncertainty layered on top of a business of risk’ (18). Familiarity with the natural hazards of navigation was, of course, crucial, but to avoid ruin in an era of revolution and frequent wars, an insurer also had to be ‘a savvy political observer’ (18).
The argument that will have the biggest impact on the history of insurance is Farber's statement that insurers were ‘not just market readers but market makers, capable of shifting the political economy of warring nations’ (23). The merchant underwriter ‘needed to be able to take action, in politics and law, to create a commercial world more to his liking’ (18). Marine insurers were not content to suffer the slings and arrows of fortune, but were quick to call on the state to help them manage risks, or to try to insinuate into American judges’ opinions interpretations of the law that would further their interests.
Many histories of early insurance markets stress innovations that stem from private efforts to reduce transaction costs and make information centrally available. One cannot help but compare Underwriters of the United States with Adrian Leonard's book London Marine Insurance 1438–1824, published the following year. 1 In the earlier period Leonard covers, the British state seems for the most part unconcerned with the development of the marine insurance market in London and ignorant of its dynamics. Its few attempts to impose new regulations on the market appear to succeed far less than private merchants’ attempts to establish norms for self-governance. By contrast, Farber shows that a ‘symbiotic risk relationship with state and federal governments’ has been a constant in the history of insurance in the United States (15).
This relationship was not untroubled by complications and divided loyalties. During the American Revolution, underwriters directly supported the war effort by underwriting privateer ships. After independence, as state-chartered insurance corporations multiplied, these companies invested the premiums they collected in state and federal banks and accepted government bonds as payment for shares. Insurers’ interests did not always run parallel with those of their fellow citizens, however. They stood to make the greatest profits when merchant ships were under threat from enemy navies and privateers, and the high premiums they charged during wartime were passed on to ordinary consumers.
Farber writes that ‘insurance functioned in its own right as a form of governance’ (16). Insurers enjoyed a kind of dual citizenship: as well as being Americans, they were ‘subject to the laws of merchants’ or lex mercatoria (17). Which community membership insurers foregrounded depended on the strategic advantages each offered at a particular moment. Underwriters looked to the state for aid in wartime when they believed that diplomacy could help them recover captured vessels they had insured. When times were good, American underwriters insisted on having autonomy over the workings of the market and how insurance claims were treated. Insurers fought for this autonomy in part because it allowed them to continue covering the risks that fetched the highest premiums but potentially exposed them to public censure and legal action, including risks on slave-trading voyages (113–16, 191–3).
To shield their business from regulatory oversight, insurers were quick to invoke the ‘laws of merchants’, a ‘purportedly transnational and eternal … body of rules, customs, and best practices’ that they were bound by but were supposedly impenetrable to outsiders. Farber adds the qualification that the ‘so-called laws of merchants’ were, by the eighteenth century, an ideal or a ‘semimythological system’ rather than a coherent body of law (16). Indeed, Chapter 5, which follows American underwriters during the Napoleonic Wars, demonstrates how quickly laws as fundamental for overseas traders as what constituted a neutral vessel could change – and not at the instigation of a transnational community of merchants, but through the decrees of warring empires.
Farber's proposal that we consider marine insurance as a form of governance during the late eighteenth and early nineteenth centuries remains an arguable point. In this period, marine insurance or insurance in other domains was never required or obligatory. While underwriters and beneficiaries who signed a policy accepted mutual obligations, these were ultimately enforceable only in court. Farber is rightfully sceptical towards the idea of a universal lex mercatoria in the eighteenth century, but perhaps she does not emphasize enough that royal ordinances and the decisions of local magistrates throughout the early modern period created great variation from port to port in the finer points of insurance law, both across international borders and within the confines of a single sovereign state. We might, then, question whether it is useful to call insurance a system of governance if it did not have independence and coherence apart from the state.
Whatever conclusions one draws about Farber's interpretation of insurance as a system of governance, one cannot fail to admire the work she has done to bring together disparate and difficult archives in a truly original account of the formation of the American state and financial institutions. This book is a much-awaited prequel to works by Sharon Ann Murphy, Jonathan Levy and Ulrich Beck that mainly focused on insurance and risk in the United States in the mid nineteenth century and later, and it will be enjoyed by as broad an audience. 2