Well before the rise of the great steel, railroad and petroleum fortunes of the 19th century, American capitalism flourished in the little city of New Bedford.
Whaling was, in retrospect, an eerily modern industry in the way it accumulated capital and spread risk. At a time when most of the nation's capital was dispersed in homes and on farms--in the form of plowshares and draft animals, for example--whaling was centralized. It was technologically innovative and organizationally sophisticated.
The American whalers' ability to come from far behind and vanquish better-established foreign competition on the high seas prefigures later U.S. global economic preeminence. U.S. whaling captains literally charted the Pacific Ocean and helped make a sphere of American influence. Despite its decline, which started around the time of the Civil War, the whaling industry left powerful legacies. Its corporate descendants include American titans like Standard Oil, General Motors, R.H. Macy and Berkshire Hathaway. To literature it gave Herman Melville's great novel Moby-Dick, whose facets sparkle even now. Especially now, for isn't Captain Ahab a grandiose chief executive, like some we have seen recently, who puts his private agenda ahead of shareholders'?
Before oil came from the ground, it often came from whales. Consumer demand for it prompted the most dangerous big-game hunts ever known: Men in small boats sailed halfway around the world to get in even smaller boats and hurl spears in hopes of killing the largest mammals on earth.
The most prized whale product was sperm oil, which was drawn from the cavity of the whale's bulbous head. Its bright, smoke-free white light made it the fuel of choice for both streetlights and indoor lamps. But whale oil rendered from the blubber of several types of whales was also in demand for lighting and lubrication. A third sought-after product was whalebone, fibrous plates taken from the mouths of baleen whales; its strength and flexibility made it ideal for umbrellas and ladies' corsets. Ambergris, impacted feces found in the intestines of some sperm whales, was used as a fixative for perfume, and was worth more than its weight in gold.
Whaling is as old as any economic activity in the U.S. Shortly before the American Revolution, whale products surpassed fur as the colonies' leading direct export to Britain. About the same time, the merchants of Nantucket Island, a whaling center since before 1700, moved to take control of the business by vertically integrating the harvesting, processing and distribution of oil and whalebone. U.S. whalers struggled from 1775 to 1815--transoceanic wars are always bad for whaling, and this era had two major ones. But the whalemen survived to triumph during the fishery's "Golden Era," from 1820 to 1860, thanks to surging demand for oil as the national economy expanded and the Industrial Revolution took hold. In 1840 the real price of sperm oil was 25% higher than it had been in 1820, although supply was up fivefold. Throughout the Golden Era the annual rate of return for whaling seems to have averaged about 15%, although a handful of merchants did 25% or better over many decades. (Safe bonds at the time paid 6%.)
The Americans' rise was a triumph of a new idea at the time: laissez-faire capitalism. What accounts for it? Perhaps most of all, Quaker culture, which paradoxically provided divine sanction for moneymaking. With conscience and commerce in fruitful alignment, Quaker merchants applied their imaginations to the only business that windswept Nantucket offered. They refined the whaleboat--the small vessel dispatched from the mother ship for the hunt--into a vehicle perfectly adapted to its special use. They also moved their factories on board their ships, as vividly detailed in the scenes of butchering and rendering in Moby-Dick. This, in turn, allowed more-profitable three- and four-year voyages to the remote Pacific.
The most impressive display of the American whalemen's genius, however, was not technical but financial and organizational. Whaling was both capital intensive and highly risky. It took $20,000 to $30,000 to launch a venture, at a time when the average farm was worth $2,500 and the average manufacturing firm $5,000. A large sperm whale, yielding 85 barrels of oil plus other parts, could fetch $3,000 when rendered. Yet hazards were many--industrial accidents, hostile islanders, uncharted reefs, vicious storms--and disasters common. At least four mother ships were destroyed by enraged sperm whales, just as the Pequod is in Melville's tale. Some boats came back empty of oil.
The whaling merchants responded by spreading this risk and making themselves money every step of the way. The dealmakers, called agents, organized each voyage as a separate venture, sold shares in it and frequently bought insurance from local firms in which they had an interest. They collected fees for various services from gross proceeds rather than net profits--as general partners in limited partnerships often do today--and could thereby break even or turn a small profit even if the venture lost money for shareholders.
Above all the whaling merchants shifted risk to--and reaped profit from--their labor force. To offload risk, agents paid the captain and crew not with wages but with the "lay," a share of net proceeds. This was something like getting no salary and negotiating your stock options. The lay could work well for captains, who often made more than merchant ship captains because of the greater skills required. It could also benefit skilled labor like harpooners, and offered workers of color, like the black Daggoo and South Sea native Queequeg in Moby-Dick, an almost color-blind outlet that was rare at the time.
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