The Rise, Fall, and Rise Again of Privateers

In August 1812, the Hopewell, a 346-ton ship laden with sugar, molasses, cotton, coffee, and cocoa, set sail from the Dutch colony of Surinam. Her captain was pleased because he reckoned that in London the cargo would sell for £40,000 – the equivalent of at least several million dollars in today’s economy. The Hopewell carried fourteen guns and a crew of twenty-five, and for protection she sailed in a squadron of five other vessels. It was difficult, however, to keep a squadron together in the vast expanse of the Atlantic Ocean, and on August 13 the Hopewell became separated from her sisters.

Two days later her crew spotted another ship, armed and approaching rapidly. At three hundred yards, the approaching schooner fired a round off the Hopewell’s bow and called for her to present her papers and prepare to be boarded, but the captain was not about to give up his cargo so easily, and he opened fire. A hail of musket and cannon balls tore into the Hopewell in return. Broadside after broadside was exchanged as the more nimble adversary bore down repeatedly. At last, the Hopewell could fight no longer, and her captain ordered the flag to be struck.

The attacker, an American schooner out of Baltimore, was neither a pirate ship nor a ship of the US Navy, then next to nonexistent. In fact, it is best to think of the Comet not as a ship at all, but as a business enterprise. The Comet’s owners and its crew, from Captain Thomas Boyle down to the lowliest cabin boy, were hunting the Atlantic for prizes: British commercial ships to be captured, condemned, and sold for profit. Piracy? Not at all. The Comet was a privateer, a ship licensed by the United States, then at war with Great Britain, to harass British vessels and confiscate their cargoes.

The privateer’s license was no mere formality. Without the license and a legal proceeding, the privateer could not sell its prizes legally. More important, courts throughout the world recognized a privateer’s license as valid. Pirates, in contrast, were barbarians and operated outside the rule of law; if caught, they would be hanged. Even the British, then the enemy, recognized that a privateer acted within the law of nations, and its captain and crew, if captured, would be accorded the same rights as captured officers and crew of the US Navy… Thus, private means were used to wage public wars.

Public navies were expensive, especially because they had to be maintained in peacetime as well as in wartime, and, until the late nineteenth century, tax systems tended to be ineffectual and inefficient. Governments, therefore, sometimes relied heavily on private initiative and enterprise to fight their wars. With a few extra cannon and men, a merchant vessel could be converted into a commissioned vessel capable of capturing small prizes should any cross its trading route. The more adventurous might build ships solely for the purpose of capturing prizes. The merchant vessels went on “voyages”; the commissioned vessels “cruised” and became known as privateers. The great era of Elizabethan exploration and expansion, for example, was financed and run by privateers. Sir Francis Drake, Sir Martin Frobisher, and Sir Walter Raleigh all operated as privateers with the Crown as partner.

Privateering played a critical role in the American Revolution, with approximately seven hundred commissioned ships, compared to approximately one hundred ships in the US Navy. Thomas Paine owned stock in privateers, as did General George Washington. Benjamin Franklin did not own such stock, but he went to great lengths to commission privateers in France. He wanted to secure the release of American soldiers held in British prisons, but because the American military captured few prisoners, he had little with which to barter. Privateers provided a ready supply of prisoners for exchange.

The apogee of the privateering system undoubtedly occurred during the War of 1812… The Comet, for example, was owned by a group of wealthy Baltimore investors who had anticipated the war. Commissioned on June 29, just eleven days after the declaration of war, this ship cleared Baltimore’s harbor along with several other privateers on July 12, and it captured its first prize on July 26.

Thus, in less than thirty days a fleet of cruisers was launched from the US coast ready to harass and imperil the British commercial fleet throughout the Western world. The privateers’ entrepreneurial foresight stands in sharp contrast to that of the US Navy. As the war began, the navy had just eight seaworthy ships…

[I]ncentives were the key to the privateering system. Most obvious, privateers chased down and captured enemy merchant ships to lay claim to the vessel and its cargo. In pursuit of this final objective, however, incentives were used throughout the privateering system. A privateering firm earned revenues from ransoms and the sale of prizes. The captain and crew were paid almost entirely in shares in the firm. The owners typically kept half the shares, and the captain and crew the other half (with some shares allocated to the vessel’s repairs and maintenance and some reserved for the captain to reward especially meritorious conduct).

The Comet’s articles of agreement were typical. When the Comet captured the Hopewell, Captain Boyle and his crew owned 256.75 shares in total (plus 13.25 shares at the captain’s disposal for rewards). Boyle himself owned 16 shares, the first lieutenant 9, the captain of marines 6, each able-bodied seaman 2, and so forth down to the greenhands, who owned 1 share each.

Taxes, duties, and payments to auctioneers ate up about half of the value of a typical prize, but the crew of a privateer lucky enough to bring in prizes would still profit handsomely. The Hopewell’s capture paid an able-bodied crewman $210.78, or about seven month’s worth of salary in alternative employment, and Captain Boyle’s 16 shares were worth $1,686.24, or at least $90,000 today.

Of course, not all voyages were successful. Privateering was a high-risk, high-reward profession. Sophisticated markets allowed crewmen to sell some of their shares forward. A crewman who wanted funds right away, for example, could sell his shares to speculators…

Naturally, the owners were well aware that a crewman who sold too many shares would no longer have an incentive to work as hard once onboard the ship, so contracts usually limited forward sales to roughly half a crewman’s total. A crewman who wanted to sell shares also had to obtain the services of a surety, a bonding agent, who would promise to make good on the shares should the crewman abscond entirely.

Shipbuilders commonly were paid partially in shares, thus improving their incentives for high-quality workmanship. In addition, the captain used the shares he held in reserve as bonuses; the first sailor to spot a prize and the first to board a fighting prize, for example, received bonus shares. Injured crewmen also received insurance payments, and in the event of a crewman’s death his shares were bequeathed to his heirs. Assaults on any male prisoner of rudeness to a female prisoner resulted in fines. Thus, incentives ranging from wage contracts to performance bonds were used throughout the privateering system.

Although the War of 1812 is not much remembered today, it was the war that confirmed America’s independence. In this second war of independence, the privateers were the first to launch. They swept out from America’s coasts, capturing and sinking as many as 2,500 British ships and doing approximately $40 million worth of damage to the British economy (approximately $525 million in today’s dollars). Despite some early successes, such as the defeat of the Guerrière by the Constitution, the US Navy was for the most part captured or bottled up in port by 1813. Only the privateers continued to venture out.

Jerome R. Garitee, author of The Republic’s Private Navy: The American Privateering Business as Practiced by Baltimore During the War of 1812, sums up the situation well: “Private armed vessels were the only successful American offensive weapon after 1813 [that were still] engaged in the War of 1812. According to a Baltimore editor, they ‘sustained the honor of the country’ almost single-handedly. In doing so, they were one important factor encouraging Britain to terminate the war. British shipowners, colonial merchants, and insurance companies suffered heavy losses, and British vessels paid high insurance rates just to cross the Irish Channel after American privateers began operating in larger numbers in British waters.” Aside from the direct military gains, the privateers brought revenue and goods into the country. Amazingly, the privateers had to pay import duties on their prize goods!

To understand why privateering ended, it is important to understand that it was always a government program…[Privateering] never accomplished exactly what the government wanted, but when governments could not easily raise the funds to maintain large navies and when monitoring of the navies was difficult, privateering was a good option. Navies, however, gave governments greater flexibility: governments could order navy personnel to do what they wanted them to do without having to change piece rates on the fly. So when navies became more economic and easier to monitor, privateering became relatively less useful…

Government’s growing power made the end of privateering inevitable. The rise and decline of an organizational form, in and of itself, has no great significance, but privateering’s decline signaled an important change in Americans’ understanding of their country. The Founders feared and despised standing armies as a threat to liberty. For them, the country’s defense was best left to citizens who would take up arms in times of national peril, form militias, overcome the peril, and then return to their normal lives.

The Second Amendment protects and reflects this understanding, and privateering fit neatly within this line of thinking. Explaining why the United States would not sign the Treaty of Paris, Secretary of State William Marcy said:

“The United States consider powerful navies and large standing armies as permanent establishments to be detrimental to national prosperity and dangerous to civil liberty. The expense of keeping them up is burdensome to the people; they are in some degree a menace to peace among nations. A large force ever ready to be devoted to the purposes of war is a temptation to rush into it. The policy of the United States has ever been, and never more than now, adverse to such establishments, and they can never be brought to acquiesce in any change in International Law which may render it necessary for them to maintain a powerful navy or large standing army in time of peace.”


By Alexander Tabarrok
for The Daily Reckoning

The Daily Reckoning