Insurance became a matter of concern for the American states from the moment they declared their independence. In order to fight a war with Britain, they needed expensive war matériel, which had to be shipped to them from overseas under risky conditions and could only be insured at great cost. In the spring of 1777, American newspapers reported with relief that French merchants were willing to ship goods to America at their own risk, in spite of insurance rates reaching 20 percent. By contrast, when Arthur Lee, Benjamin Franklin, and Silas Deane made commercial overtures to Frederick I of Prussia, a reluctant minister stalled the proceedings by inquiring about insurance rates. Lee attempted to convince Prussia that Amsterdam underwriters would insure shipments to America at the extravagant rate of 40 percent, a rate so “infinitely beyond the risk” that the underwriters would find it an “irresistible temptation.” The overture to Prussia ultimately fizzled, but these diplomatic exchanges demonstrate that insurance networks were already adapting to changing political conditions, shifting, alongside Americans’ commercial routes, away from Britain and toward France and Amsterdam.

American insurance offices did not hold charters from their states, but they were nonetheless carefully organized local institutions within which collective obligations were managed in a variety of ways. In New York City, the members of the New-York Insurance Office advertised the hours at which they sat at the merchants’ coffeehouse to accept applications for insurance. These members did not bother to announce their names, however; New York City merchants already knew who they were, and any newcomers could easily show up and find out. In Boston, John Hurd advertised his brokerage office under his name alone, but locals and his correspondents would have known that his office was funded by a fixed group of twenty underwriters, whose names were printed on the brokerage’s policies. In New Haven, Wethersfield merchant Barnabas Deane announced the opening of an insurance office that was practically a patriot family affair: its four underwriters were Silas’ stepson Joseph Webb Jr., the privateering brothers Samuel and John Broome, and Samuel’s brother-in-law Jeremiah Platt, a privateer based in Hartford.

It was not uncommon for privateers to underwrite insurance policies. It was also not uncommon for privateers to purchase insurance policies. To do so was only logical. Americans who received privateering licenses from the Continental Congress were entering into profit-sharing arrangements with their new government: if they captured British vessels, they owed it two-thirds of their winnings. But the American privateers sailed at their own risk: if their vessels were lost or damaged, they shouldered the cost alone—unless, that is, they took out insurance policies. When they did this, they reduced their own risks while making the American insurance sector a key part of the political economy of the independence war.

The wartime privateering economy forced compromises onto the American states from the moment they came into existence. Privateering, of course, had its upsides. It embarrassed Britain and disrupted its commerce, and it kept much of New England economically afloat through the war’s most difficult years. On the other hand, issuing a privateering license to a merchant meant allowing him to maintain his focus on his own private gain and to lure skilled seamen away from naval service. Marine underwriting, by diluting the risks of privateering, heightened these dilemmas for the new American governments. In the process, it strengthened the insurance offices, reinforcing their roles as nodes of capital, expertise, and news apart from the nascent state.

American brokers and underwriters had to manage the risk of political opprobrium during the Revolutionary War. Although American brokerage offices were too small to become main targets of public condemnation, they had visibly proliferated during the war, and they were known to be controlled by America’s wealthier merchants—that is, by people already subject to charges of placing profit over loyalty by price gouging, privateering, and trading with the enemy.

The prices of imported goods skyrocketed during the early years of the war, provoking violent public response. Virginians rioted over the price of salt in December 1775, and additional riots broke out in at least six other states over shortages of imported goods like sugar, rum, molasses, and tea. To limit currency inflation and price gouging, the Continental Congress recommended in 1775 and 1776 that the states should set maximum prices for certain imported goods. A few states heeded the Congress’ advice, but price inflation continued.

Merchants disliked price limitations, but they had to frame their objections carefully in order to avoid accusations of profiteering. A safe approach, some seemed to believe, was to blame for the high prices of the goods they sold on the cost of their insurance. In July 1776 a Philadelphian calling himself “Mercator” made the case to the readers of the Pennsylvania Evening Post that merchants importing salt were actually losing money under imposed price caps and that the reason for this was insurance. Before embarking on a set of elaborate calculations to support his case, Mercator attempted to establish the principle that, in any viable form of commerce, the merchant must be able to pay for insurance and still make a profit. “It is an old established maxim amongst merchants,” he wrote, “that a trade which will not bear insurance is not worth following, and also he that doth not insure is to calculate as though he did.” In other words, insurance was nonnegotiable. Even if a merchant opted not to buy insurance, he effectively self-insured, and thus insurance still needed to figure into his pricing calculations.

But how much could it possibly have cost to insure a ship full of salt? Mercator informed his readers that the insurance premium on a round-trip voyage from Philadelphia to the West Indies for salt would, under current political conditions, most likely be 75 percent. He went on to calculate that a merchant purchasing four hundred pounds of salt (Virginia currency) would have to pay an insurance premium of fourteen thousand pounds. Thus, even if the merchant marked up his salt to nearly forty times what he had paid for it, he would barely be able to cover his expenses.

If you have just wondered how a 75 percent premium on goods worth four hundred pounds could cost fourteen thousand pounds, it is because you have come across a peculiarity of eighteenth-century insurance. Mercator assumed that the merchant would buy an insurance policy that covered not only the price of the goods but also the cost of the insurance premium itself. He was insuring himself in such a fashion that, if he lost his vessel and goods, he would walk away from the loss indemnified in full for his “outlay,” without owing his insurer even the cost of what would, in any case, have been an exorbitant insurance premium.

Insuring against the risk of having to pay one’s own insurance premium was not a universal practice (although Mercator wanted his readers to think that it was), but it was a widely accepted one. But it was nonetheless true that if the salt merchant had not insured his own premium, the cost of salt passed on to customers would have been far lower. In such a case, the merchant would have been responsible (in Mercator’s example) for the cost of insuring only the cargo, vessel, and freight at 75 percent, along with brokers’ fees and the like. Salt sold in America under these conditions would have had to be marked up only twelve times for the merchant to break even, instead of the forty times Mercator insisted upon.

Although seeming to open up the business of insurance to his readers with these kinds of calculations, Mercator in fact downplayed a few major matters, to which American audiences might have objected had they been able to understand the mathematics that he wielded against them. First, Mercator assumed that merchants had the right not only to reduce their risk but to avoid risk entirely by off-loading even the risk of having to pay the premium onto the insurers. The insured merchants would pay their exorbitant premiums only on goods that actually arrived, and they would pass those costs along to their customers. If the goods did not arrive, the merchants would lose nothing, and the insurers would compensate the merchants for only the cost of the goods—a much lower figure. In short, if the goods came in, customers paid a lot, and if they didn’t, insurers paid a little. This was a clever way of incentivizing insurers to keep underwriting during periods of extremely high risk, for, in Mercator’s example, the underwriter weighed the likelihood of gaining 14,000 pounds against the likelihood of having to pay out 4,200.

Mercator’s calculations also suggested to readers that they ought to envision “merchants” and “insurers” as separate groups of people, who each had the right to expect profit: the merchants on each voyage, and the insurers over time. In truth, however, the underwriters of Philadelphia were mostly merchants themselves, and vast numbers of Philadelphia merchants underwrote at least occasionally. To understand the implications of this, assume an exaggeration in which all Philadelphia merchants were also insurers. In this case, if ships came in, merchants paid the exorbitant price of “full” insurance to themselves (wearing their insurers’ hats) and passed the cost along to their customers. If ships didn’t come in, insurers paid only the far more moderate price of the lost cargoes to themselves (wearing their merchants’ hats).

Was this practice justified? Answering this question means aligning one’s self with a constellation of beliefs about capitalism in theory and practice. To agree that this approach to insurance was justified would be to assert a belief that markets, in general, functioned; that the importation of salt was a good thing; that merchants could not import salt without the ability to sell their risks in this fashion and to price salt accordingly; and that, eventually, greater quantities of salt on the market would force the cost of salt to come down. To refuse this logic, by contrast, would be to assert disbelief in the idea of a market moving toward regularity during an era of war. It would accompany an assumption that merchants were likely making the choice to import salt knowing they could charge a desperate public enormously high prices; that they might be colluding in some fashion to keep those prices as high as possible; that if they saw their margins narrowing on salt (in the chaotic environment of the war), rather than dropping salt prices they might start trading in something else. It is certainly not hard to find instances when merchants were cheating. Later in the summer of 1776, the Pennsylvania Convention discovered that salt had, in fact, been recently “imported at low prices, and under moderate insurance,” but that merchants had nonetheless been selling it “at most exorbitant prices.” Complexity was, it seemed, serving as a smokescreen for profiteering.

In November 1778 Charleston merchant Henry Laurens, serving as president of the Continental Congress, received an anonymous proposal that purported to solve the problem of underwriter profiteering as well as the broader crisis of depreciation. The letter’s author suggested the establishment of a “public” insurance office in each state of the new American union that would be authorized to insure the goods and vessels of the inhabitants of the state as well as any goods and vessels en route to that state. The public offices would reshape the relationship between the insurance business and the state. They would be “for and on Acot” of each state—that is, any profit earned by the insurance office would be the state’s to keep. The public offices would, at the same time, benefit from the expertise that could only be acquired through individual merchants’ commercial experience and personal relationships. The office’s local “commissioners or directors or managers” would be in a position to gain direct knowledge of each state’s vessels, captains, and merchants and would thus be able to thwart any attempts to make fraudulent insurance.

The author of this proposal additionally argued that the establishment of public insurance offices would slow inflation, a problem that he attributed to merchants’ excessive speculation on “the Inland Trade,” which had grown far out of proportion to the foreign. “Direct Laws,” he claimed, had proved inadequate to repress this speculation; new insurance offices would serve as an “Indirect” means of repressing it by drawing the attention of “Monied Men” back to “foreign commerce.” Legislation evidently could not prevent “Monied Men” from doing as they pleased, but new institutions had the potential to redirect their profit-making energies toward the task of bringing real, badly needed goods into the country. And even if the public insurance offices, through excessive payouts, should on the whole cause “a loss to the state,” the loss would be more than offset through the benefits of slowed depreciation, along with cheaper and more plentiful imported goods. Entering the insurance business, in other words, would help the American states compensate for the wartime losses of wealth they were already experiencing. The new risks would be no worse than the existing risks they already bore.

The anonymous proposal was not implemented by the Continental Congress, and today it is hard to imagine the United States emerging from the Revolutionary War with thirteen public, state-owned insurance offices. Americans would, after all, go on to fight for decades over the legitimacy of one single national bank. But American merchants already considered themselves to be public-minded citizens, whose wealth entailed responsibility and whose expertise entitled them to lead. Supervising a set of insurance offices, whose capital would be the American public’s, would have been a highly plausible addition to their portfolios.

From Underwriters of the United States: How Insurance Shaped the American Founding by Hannah Farber. Copyright © 2021 by the Omohundro Institute of Early American History and Culture. Used by permission of the University of North Carolina Press.

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