Posted on 28 November 2020 by Timothy Taylor, Conversable Economist As all of us who learn our US history from Broadway musicals know, Thomas Jefferson and Alexander Hamilton disagreed on everything. But in the aftermath the US Revolutionary War, when George Washington had become the first US president, he asked Jefferson and Hamilton to work together in creating a plan to rescue the fisheries off the New England coast, which had suffered greatly during the Revolutionary War. (Pictured below is an Atlantic cod, Wikimedia Commons.)Please share this article - Go to very top of page, right hand side, for social media buttons.Jefferson and Hamilton agreed on an incentive-based plan--although for distinctively different reasons. The result of their collaboration was February 1791
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posted on 28 November 2020
by Timothy Taylor, Conversable Economist
As all of us who learn our US history from Broadway musicals know, Thomas Jefferson and Alexander Hamilton disagreed on everything. But in the aftermath the US Revolutionary War, when George Washington had become the first US president, he asked Jefferson and Hamilton to work together in creating a plan to rescue the fisheries off the New England coast, which had suffered greatly during the Revolutionary War. (Pictured below is an Atlantic cod, Wikimedia Commons.)
Please share this article - Go to very top of page, right hand side, for social media buttons.
Jefferson and Hamilton agreed on an incentive-based plan--although for distinctively different reasons. The result of their collaboration was February 1791 "Report on the American Fisheries by the Secretary of State", produced by Jefferson but with the assistance of staff loaned to the project by Hamilton.
Rigobert Bonne and Guilleme Raynal’s 1780 map of the Northeast United States and Eastern Canada. This highly detailed map covers the eastern coast of the United States from a portion of New Jersey and New York in the south as far north as the Canadian Maritime Provinces of Nova Scotia, New Brunswick, and Newfoundland. Identifies Martha’s Vineyard and Nantucket Island. Shows all principal harbors, ports, bays and islands. Along the coast, shoals such as the Grand Banks and the fisheries off Cape Cod are depicted, as this area was extremely important to the North American cod fishing industry through the 18th century. Wikimedia Commons
Although I've seen this episode mentioned in passing in several place, the best telling of the story I've run across is by Joseph R. Blasi in "George Washington, Thomas Jefferson, and Alexander Hamilton and an Early Case of Shared Capitalism in American History: The Cod Fishery" (Rutgers University School of Management and Labor Relations, Working paper, April 15, 2012).
As the "Report on the American Fisheries" points out, literally dozens of European ships were catching cod of the coast of what would be come New England and Canada in the early 1500s. But during the Revolutionary War, the US fishing industry was largely destroyed. As Blasi says: The American Revolutionary War lasted from 1775-1783 during which time the British went out of their way to paralyze and destroy the important cod fishery because of its economic and its national security importance." Or as Jefferson wrote:
The fisheries of the United States annihilated during the war, their vessels, utensils, and fishermen destroyed, their markets in the Mediterranean and British America lost, and their produce dutied in those of France, their competitors enabled by bounties to meet and undersell them at the few markets remaining open, without any public aid, and indeed paying aids to the public: Such were the hopeless auspices under which this important business was to be resumed.
George Washington first took office in February 1789. In April 1790 the state of Massachusetts requested a plan for restoring the cod industry, and Washington assigned the job to Jefferson. However, Blasi notes:
[I]t is clear from the historical record that Tench Coxe, the Assistant Secretary of the Treasury under Alexander Hamilton, was sending materials to Jefferson and serving as his lead reasearcher. It is interesting and notable that, despite his growing rivalry with Secretary of the Treasury Alexander Hamilton at this time and their deep policy conflict over Hamilton’s proposal for the first Bank of the United States and many other issues, that Hamilton’s right hand man, Tench Coxe was essentially staffing Jefferson on the fishery issue and serving as his researcher, and that essentially, both departments were cooperating on the fishery issue.
Jefferson pointed out that along with the physical destruction of fishing ships during the war, the fishing industry labored under other disadvantages. The British and French were subsidizing their fishing fleets, while imposing duties on American-caught fish. In addition, taxes imposed by the US government were hurting the fishing industry. As Blasi describes Jefferson's argument:
Finally, the report lays out a significant disadvantage actually imposed by the young U.S. government, namely, and ironically, barriers to the industry’s development actually imposed by the young Government itself in the form of taxes and duties such as tonnage and Naval duties on the vessels and impost duties on the supplies used in the fishery production (salt, hooks, lines, leads, duck, cordage, cables, iron, hemp, and twine) and in the “nourishment" of the seamen (tea, rum, sugar, and molasses). There was also a tax levied on the coarse woolens of the fishermen and a poll tax on each of them levied by the State of Massachusetts. Jefferson adds up the taxes from duties and concludes “When a business is so nearly in equilibriuo, that one can hardly discern whether the profit be sufficient to continue it, or not, smaller sums than these suffice to turn the scale against it." (p. 210-211) Ironically, after a war partly motivated by anti-tax fervor, America’s leading industry was being smothered in taxes and government bureaucracy.
Jefferson and Hamilton of course had quite different perspectives on the fishing industry. Jefferson saw the industry as an opportunity for small family-sized businesses. Thus, when listing in his report the advantages of the US-based fishing industry, Jefferson mentioned factors like:
The neighbourhood of the great Fisheries, which permits our fishermen to bring home their fish to be salted by their wives and children. ... The smallness of the vessels, which the shortness of the voyage enables us to employ and which consequently require but a small capital. .... The cheapness of our vessels, which do not cost above the half of the Baltic fir vessels, computing price and duration. ... Their excellence as Sea-Boats which decreases the risk and quickens the returns.
There was also a widely held belief that the fisheries were a training ground for sailors who then might end up either in the navy or in other jobs in the shipping industry.
Hamilton, on the other hand, viewed fisheries as part of what he hoped would be a US economic future as a manufacturing power. In his Report on the Subject of Manufactures, finalized in late 1791, he makes a brief comment on fisheries along these lines:
As far as the prosperity of the Fisheries of the United states is impeded by the want of an adequate market, there arises another special reason for desiring the extension of manufactures. Besides the fish, which in many places, would be likely to make a part of the subsistence of the persons employed; it is known that the oils, bones and skins of marine animals, are of extensive use in various manufactures. Hence the prospect of an additional demand for the produce of the Fisheries.
Jefferson's report on fisheries did not make explicit policy recommendations, but the implicit recommendation that Congress should stop burdening the industry with taxes on the inputs it used and instead consider mechanisms to support it was pretty clear. Of course, a number of shipowners of fishing vessels strongly believed that the US should also adopt a system of government bounties, paid directly to them. But the laws that emerged from the first Congress came out a little differently, including both specific legislation about the rights of workers and about profit-sharing.
As Blasi tells the story, one motivation for the worker's rights legislation was that British fishing vessels were often offering a better deal to American fishermen. Thus, even before Jefferson's report on fisheries was released, Congress passed a law to assure better treatment of US fishermen. Blasi writes:
Ships were one of the largest collections of workers in an employee-employer relationship in the young nation so it is no surprise that First Congress passed a law on July 20, 1790 that laid out work conditions for seamen. From December 1, 1790 every master or commander of a ship had to have a written agreement before a voyage declaring the length of the voyage while every seaman had to agree to be available for the time period or there was a wage penalty. Workers had the right to one third of their wages before the voyage ended and the balance upon the completion of the voyage. The law provided a procedure by which members of the crew other than the captain could move for the repair of leaky or faulty ships, the requirement of a chest of medicines on board, and minimum per person requirements of water, salted meat, and “wholesome ship-bread. If seamen received a lower allowance then the commander had to pay them an extra day’s wages for each day of ‘short allowance.’ " Other laws provided strict rules for keeping track of seamen as voyages ensued, for making records of seamen seized by foreign powers, and for hospital care and relief for sick and disabled seaman.
Cod fishing off Newfoundland in the 19th century. Image extracted from page 655 of A History of Newfoundland from the English, Colonial and foreign records. ... With illustrations and numerous maps., by PROWSE, Daniel W.. Original held and digitised by the British Library. Wikimedia Commons.
Given that many people tend to view the US version of capitalism as red in tooth and claw up basically up to the New Deal of the 1930s, or even up to the present, it's interesting to read the list of contractual rules and occupational health and safety provisions that Congress was passing in 1790. Soon after, Congress reacted to the Jefferson bill with provisions to roll back taxes that would otherwise have been owed. This was carefully not called a "bounty," but was rather an "allowance." The law specified that an owner of a ship could not receive the allowance unless there was a written profit-sharing agreement with the crew. Blasi writes:
But, clearly, the most significant and the most interesting detail about the “bounties" and incentives is that the Federal government required in the same 1792 law that no allowances could be paid to the owner of the ship unless the ship owner had a written profit sharing agreement with all the fishermen affirming that the traditional and customary shared capitalist practice of broad profit-sharing on the entire catch itself would be honored. ... [T]he owners had to produce this written agreement when they requested payment of the their share of the allowance. So, in the end, the law insured profit sharing in two ways: both the allowance in order to encourage the industry’s revival was shared between the crew and the owners and the custom of broad-based profit sharing on the entire catch had to be honored. The owners of large cod ships were required to have these signed profit sharing agreements with the sailors before the ship left the port. The penalty to the owner was the same as the penalty for desertion of a ship. This probably the first documented case in American history where shared capitalism became the law of the land.
The New England fishing industry had had various forms of profit-sharing with the crew for some time. The idea that such agreements provided greater incentives for the crew was well-known, and such agreement were broadly accepted. But the idea that such agreements would be encouraged by the provision of government incentives to owners was one more innovation for the early United States.
This article appeared on Conversable Economist 27 November 2020. Illustrations added by Econintersect.
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