Comments on Risk Panel at SHEAR 2017

SHEAR Comments July 2017

R. E. Wright

[These comments refer to the 9 am Saturday 7/22/17 panel "Minimizing Risk: Life Insurance, Mutual Aid Associations, and Social Networks in Antebellum America" at the annual conference of the Society for Historians of the Early American Republic. The papers were by Robert Colby, Laurel Daen, and Kathryn Olivarius. http://www.shear.org/wp-content/uploads/2017/07/Philadelphia-2017-Program_FINAL.pdf page 52.]

I assess professional papers on a scale from HU to P, where the latter stands for Pernicious and the former to Highly Usable for policymakers, practitioners, or scholars. Examples of Pernicious papers are those of Farley Grubb on colonial paper money and some articles published in the Journal of the Early Republic that contain fundamental flaws, like confusing assets and liabilities, that impact the sign of conclusions.

While the papers we’ve heard here today stumble in a few places, I am happy to report that none of them are even close to being so unworthy as to be worthy of a grade of P. That said, I wouldn’t classify any of them as HU either, though I don’t think that is the fault of the authors but rather the sorry state of the historiography of the Early Republic. Historians Against Slavery, of which Randall and I are board members, is in the business of creating scholarship useful in the fight against modern slavery.

A big part of the problem is that many young scholars interested in business, economic, and financial history are not being adequately supervised in our discipline’s putative top Ph.D. programs. That was the gist of my recent negative review of a good friend’s book on the political economy of New York. Numerous other studies have emerged in recent years that contain major holes or conceptual flaws because top History Ph.D. programs won’t hire bona fide business, economic, financial, or even legal historians to help their graduate students.

All three papers, for example, would benefit from an explication of the theory of asymmetric information, or more specifically adverse selection, which can be described in this context as the predilection of those most in need of insurance to seek it most earnestly, and moral hazard, which is the predilection of insureds to seek as much money from insurers as possible. Historians can and should use these concepts, which in fact were introduced to me by Naomi Lamoreaux at a conference almost twenty years ago. The terms are not only useful conceptually and help to connect detailed archival work to bigger issues in political economy, they also direct research efforts because scholars do not need to spend resources proving the existence of asymmetric information in any given context. Like gravity, it is definitely there and has been since humankind was kicked out of Paradise. What changes over time is how asymmetric information, which is a major type of market failure, is mitigated, if it is at all.

So while Christy Ford Chapin has a serious chance of influencing ongoing healthcare debates, these papers won’t influence ongoing policy discussions about disability insurance. If anything, the authors would do well to study the literature on contemporary disability insurance. Laurel’s paper, for example, does not differentiate between what would today be called “own occ,” or what traditionally was known as “his occ,” on the one hand and “any occ” disability insurance on the other. “Any occ” insurance, as the name implies, ceases when the insured can undertake any occupation. SSDI is the leading example today. It is much less expensive than “own occ” insurance for two reasons. First, insureds are more likely to be able to undertake any occupation than they are their own, more specialized occupation, which of course is a logical subset of the category “any” occupation. Second, it is much easier for insurers to monitor shirkers with an “any occ” policy because if insureds are observed walking, painting a door, shopping, etc., they obviously can undertake some type of occupation. The ability to walk long distances unaided, shop, and perform other quotidian activities, however, is not an indication of an insured’s ability to audit a company, manage a bank, perform surgery, and so forth. So the moral hazard is much higher in “own occ” policies, which is one reason why Guardian Life Insurance Company of America charges a pretty penny for such policies today. The tradeoff between “any occ” and “own occ” policies, of course, is precisely the issue being explored by the non-profits in Laurel’s paper.

I could go on to the other papers but I’m running out of time and want to explore the contribution of these three papers to our understanding of the Early Republic. Beyond the new archival work, I don’t see much but that is because the historiography of the Early Republic appears to be in transition. The Market Revolution discussion has, thankfully, long since expired, as has all that silly business about Republicanism versus Liberalism. The new History of Capitalism subfield is largely just warmed-over Marxism. Capitalism is amorphously defined by that group at best and I think purposely so, so that it can be used when convenient as a sort of black box that seems laden with meaning but actually explains nothing at all.

The single most important topic at this conference, it seems to me, is slavery. Thankfully, I’ve seen little in the Baptist mold, i.e., the recent notion that slavery caused economic growth in the U.S. and U.K. I hope that is because SHEAR members know that the “slavery causes growth hypothesis” has already has been destroyed by economist historians and by myself in The Poverty of Slavery: How Unfree Labor Pollutes the Economy. In that book, I point out that slavery created negative externalities, pollution if you will, many times more costly to society than the profits earned by enslavers. Ergo, slavery was a net loss to the economy even as it enriched Southern slaveholders. One of the many externalities I point to in the book, which by the way covers all slave societies globally throughout world history, is that slaves often serve as disease vectors, a point that Robert’s and Kathryn’s papers certainly reinforce.

All three papers also show the importance of finance in early U.S. economic growth. When I first came up twenty years ago, the existence of both a sophisticated financial system and economic growth were widely denied. I recall some fellow, Bob Arnett or something like that, claiming that the economy didn’t grow in the 1790s because Robert Morris’s land speculations did not pan out. Still scratching my head over that but if cataloguing the reasons for the early U.S. economic miracle, the occurrence of which is now beyond doubt, is too tedious or distasteful for historians of the early republic, they could also work on policies and practices that limited growth, like slavery, the denial of full civil rights to women and Indians, and so forth. And these three fine papers show that while asymmetric information was mitigated in various ways, it sometimes remained an important barrier to market efficiency, as in the life insurance market in New Orleans as Kathryn shows, and in the slave trade as Robert’s paper thoroughly demonstrates.

In sum, it’s good that SHEAR is finally paying more attention to the business and economic history of the Early Republic. Talented, young scholars appear ready to move the historiography forward, but they need more support if they are to influence more than the people in this room.

Thank you.