Freakonomics Radio - The First Great American Industry (Update)

Episode Date: August 8, 2025

Whaling was, in the words of one scholar, “early capitalism unleashed on the high seas.” How did the U.S. come to dominate the whale market? Why did whale hunting die out here — and continue to grow elsewhere? And is that whale vomit in your perfume? (Part 1 of “Everything You Never Knew About Whaling.”) SOURCES:Eric Hilt, professor of economics at Wellesley College.Nathaniel Philbrick, writer and historian.Paul Watson, environmental activist and founder of the Sea Shepherd Conservation Society. RESOURCES:“Calls From the Deep: Do We Need to Save the Whales All Over Again?” by Sophy Grimshaw (The Guardian, 2020).“The Very Small World of V.C.,” by Avi Asher-Schapiro (The New Republic, 2019).“How Nantucket Came to Be the Whaling Capital of the World,” by Nathaniel Philbrick (Smithsonian Magazine, 2015).“Fin-tech,” (The Economist, 2015).“The Spectacular Rise and Fall of U.S. Whaling: An Innovation Story,” by Derek Thompson (The Atlantic, 2012).Leviathan: The History of Whaling in America, by Eric Jay Dolin (2007).“Incentives in Corporations: Evidence from the American Whaling Industry,” by Eric Hilt (NBER Working Papers, 2004).In the Heart of the Sea: The Tragedy of the Whaleship Essex, by Nathaniel Philbrick (2000).“Productivity in American Whaling: The new Bedford Fleet in the Nineteenth Century,” by Lance Davis, Robert Galiman, and Teresa Hutchins (NBER Working Paper, 1987). EXTRAS:“Is Venture Capital the Secret Sauce of the American Economy?” by Freakonomics Radio (2021).“Is the Future of Farming in the Ocean?” by Freakonomics Radio (2021).

Hey there, it's Stephen Dubner. We are taking a little summer break. Maybe you are, too. So we wanted to play you a series from the recent archives, one of our very favorites. This comes from 2023, and the series was called Everything You Never Knew About Whaling. Back in the 19th century, whale hunting was big business, especially in the U.S. It created massive wealth, and it drove investment in other parts of the economy. but eventually it collapsed for a variety of reasons, all of them pretty interesting.

We also learned that whaling continues to affect the economy in some parts of the world. Consider this, President Trump's Big Beautiful bill includes a provision that allows indigenous Alaskan whaling captains to claim larger tax deductions on their business operations. This provision helped Republicans get Alaska Senator Lisa Murkowski to vote for the bill. So whaling is still making news. news, at least the news we read. This series was a lot of fun to make, and I hope you enjoy listening to it. We have updated facts and figures as necessary. What drives you to do what you do, Paul? I don't want to live in a world without whales. Paul Watson is an environmental activist. You may remember him from a TV show called Whale Wars, where he and his

his crew confronted Japanese whale hunting ships in Antarctica. Warning, warning, warning. Quit poaching whales and go back to Japan. Watson calls himself an eco warrior. Other people have different names for him. A judge on the Ninth Circuit Court of Appeals called him a pirate. I'm actually quite proud of the fact that I'm officially a pirate. Others call him an eco-terrorist.

In 1985, I went to Reykivik with my ship. And I said, look, the law is going to come into effect here in 86. And I'm warning you, if you continue to kill whales, and we're going to come here and we're going to sink your ships. So they continue to kill whales. And then on November of 86, we sank half the fleet in Reykivik Harbor. How did you do that? Went into the engine room in the middle of the night and opened up the saltwater cooling system, flooded the engine rooms, and they sank dockside.

There was nobody on board. Not everyone approves of Watson's tactics, not even all his fellow environmentalists. Well, in 1971, I was a co-founder of Greenpeace. I left Greenpeace in 77 and established the Sea Shepherd Conservation Society. Greenpeace, by the way, disputes that Watson was a founder. His departure, however, is not disputed. He was kicked off the board by a vote of 11 to 1. Then came his Sea Shepherd organization, which lasted for several decades.

But I was forced out by a hostile takeover of that society, and they took my assets, my ships, and everything. So he just started a new group. It's called the Captain Paul Watson Foundation, and he's got a new ship. We're going to be doing our first campaign this summer. What is that campaign? To stop the killing of endangered fin whales in the waters between Iceland and Greenland. It's illegal to kill them, and we want to stop them. Watson's latest campaign ended abruptly when he was arrested in Greenland by Danish authorities on an arrest warrant from Japan. The Danish courts rejected a Japanese request to extradite Watson, and he was released after five months. Here's what he said in a statement.

My arrest has focused international attention on Japan's continuing illegal whaling operations, so, in fact, these five months have been an extension of the campaign. You may be surprised to hear that there is still whale hunting going on. When people go out on boats these days in search of whales, they're usually just whale watching. Public sentiment today is extremely pro-wale, and has been since the Save the Whales movement, launched by Greenpeace, by the way, began in the 1970s. On the other hand, for centuries, people all over the world did hunt whales, and in some places, the U.S. in particular, the whaling industry was a central part of the economy and of life to a degree that is hard to fathom today. In a way, the story of the whale is the story of our economic history, and it's a complicated history. Well, you know, these are majestic creatures, but as long as our economic welfare depended on whales, no one seemed to take that attitude.

Today on Freakonomics Radio, the beginning of a special series you didn't ask for, but deep down, you know you wanted. We will take what whalers used to call a Nantucket sleigh ride, starting in the 19th century. It was an extremely lucrative and important industry. It was also a particularly dynamic industry. This was early capitalism unleashed on the high seas. The whale itself became central to our art and culture. Part of what makes Moby Dick funny is that there's a hatred for a specific animal. So we will chase our white whale from New York.

England, to Japan, to Norway. We are eating and slaughtering of all sorts of animals, and the whales are no more than an animal. We'll hear about a clash between two sides of the environmental movement. It's definitely a concern that we've had all these whales being found floating dead. We will hear from economists who have analyzed the whaling labor force for insights into today's labor force. As the crew becomes more diverse, the conflicts increase.

And yes, we will hear those words you've been waiting for. There she blows! This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner. It's interesting to me how invisible America's whaling past is today. There is one place in America where the whaling past is less invisible. Yes, my name is Nathaniel Philbrick. I am a writer and historian on Nantucket Island. Nantucket lies about 30 miles off the coast of Cape Cod in Massachusetts.

It's a pretty small island, barely 100 square miles, and accessible only by boat or plane. The year-round population is only 10,000. It swells to 60,000 during the summer. Philbrick moved there with his family in 1986. And I inevitably became fascinated with the island's history and began to research it. And what did he learn? The whaling industry on Nantucket was everything. They really didn't have anything else going on. Philbrick has written several well-regarded books of maritime history, The one most relevant to our discussion today is called In the Heart of the Sea, the tragedy of the whale ship Essex. The Essex was the real-life inspiration for Moby Dick by Herman Melville, the whale of all whaling books. Don't worry.

We will hear much more about Moby Dick later in this series. Phil Brick's book draws a picture of Nantucket as the undisputed capital of America's early whaling industry. You have to remember, this was before petroleum. Whaling was big business. It was the first vertically integrated economic system in America, and it had been high profile since pre-revolutionary days. The British statesman Edmund Burke had pronounced before Parliament that these people on Nantucket epitomized what the colonies were all about, that no one could compare to their economic wherewithal, their energy, and their inventiveness. Nantucketers were, as Melville says, Quakers with a vengeance.

The American whaling industry at its peak in the mid-1800s included over 600 ships more than any other country. It killed thousands of whales a year and produced hundreds of millions of dollars a year in today's dollars. The streets of Europe were lit with Nantucket whale oil. It was lubricating the machines of the emerging industrial age. It was really at the center of this global economy. Ralph Waldo Emerson would visit Nantucket during one of his lecture tours and would record in his diary, Nation of Nantucket makes its own war and peace. People really did look to the island as its own kind of exemplar nation within a nation.

Okay, so how did this little island become the capital of whaling? Well, the first English settlers who arrived on Nantucket in 1659 came here not to whale, not even to fish. They came here to be sheep herders because Nantucket was an island without wolves. And so they brought with them sheep. But Nantucket wasn't great for raising sheep, since there wasn't enough river power to run the mills to process wool. So the Nantucketers turned to fishing. One of the things they did notice was that every winter pods of right whales. They were called right whales because they were the right whale to kill. They floated when you killed them. these pods of right whales would appear along the south shore.

And the native Wampanog for years had harvested the dead whales that had washed up on shore and gotten the oil from that blubber. The Nantucketers began to commercialize whale hunting, often at the expense of the native Wampanog. One of the reasons why whaling took off on Nantucket was that the Nantucketers had from the beginning a source of cheap labor. They employed the Wampanog and had this system of debt servitude by which if Wampanog got into trouble with the law or something like that, their penalty would be in years in the whale fishery. Most of the whale hunting at the time happened close to shore. The longest a ship might stay out at sea was a few days. But the Nantucketers began to deplete the local whale supply.

And then in the early 1700s, a whale boat was blown out to sea in a store. And they were well off the island when they saw a whale with a different kind of spout, a spout that went forward rather than straight up. This was the sperm whale. The Nantucketers killed this unusual whale. According to the account, the blood and oil of the whale stilled the waters in this storm in a biblical fashion. They towed it back to Nantucket, and they realized, wow, this is where our future lies. This is the high-end portion of the whale oil market. And so they would devote themselves almost exclusively to sperm whales, which are much harder to get, which require you to sail way offshore to pursue them.

But that was Nantucket's future. This future required bigger and faster ships, more advanced tools and technologies, including a more efficient way to process the whale oil. A whale ship was a floating factory. The key piece of equipment was called a tryword. It's essentially a big brick furnace where you would render the oil from the blubber of the whale. This used to happen on land, which meant that ships had to haul the whale carcass back to shore, but by the 1770s, whale ships were outfitted with triworks on board. They'd go out, kill the whale, chop up the blubber, boil it down in the brick triworks,

and then sail back to Nantucket. And so what had been a shore whaling that was done in days and then eventually a month and a half became the voyages lengthened to six months to a year. And then when Nantucketers finally made it around Cape Horn into the Pacific, these voyages were now going two, three, sometimes even four years. By this point, the American whaling industry had spread up and down the eastern seaboard. Massachusetts, Connecticut, and New York in particular. So that's a look at the supply side of the whaling equation. How about the demand side? Whale oil is an excellent product.

That is Eric Hilt, an economic historian at Wellesley College in Massachusetts. He knows a lot about whaling. He says that whale oil was valuable as a lubricant. With industrialization, you have lots of factories using machinery that needs lubrication. and as an energy source. We needed lighthouses. We have cities. They need streetlights.

We have all these homes expanding everywhere. They need illumination. And it's whale oil that provides that illumination. What share of illumination was provided by whale oil at the peak of whale oil illumination? Oh, I'm sure it was very, very high. There were different components of the market. So lighthouses, which need to be very bright, and street lights, which also need to be bright, they burned exclusively sperm whale oil.

Sperm whale oil could be refined into extremely high-quality lubricants and illuminants. The highest-quality winter sperm oil. It does not congeal even at 32 degrees Fahrenheit. It burns really well. It burns very brightly. Sperm whales also produce a substance called spermaceti, which is a waxy substance that gets made into super high-quality candles. Households that could not afford really nice sources of illumination would use lamps that burned the oil from baleen whales, which wasn't as nice.

It didn't burn as well, and it also gave off a fishy odor. Baleen whales, however, have another product within their bodies, which is called baleen. It's this keratinous substance that they use in their mouths to sort of strain the water. that Baleen is a strong, flexible material that was very useful in some respects the way we use plastic today. So in the mid to late 19th century, women's fashion demanded a huge amount of it, and its product rose substantially. So women were expected to wear these really, really tight-fitting corsets underneath their dresses, and the corsets were made rigid by including Baleen within them. The word, I don't know, I've heard it pronounce both ways.

Ambergris, do you say? I would say ambergris. And ambergris came from what part of the whale? From the intestines of sperm whales only. So it's a very valuable product that's rarely obtained, and it comes from something having to do with the digestion of sperm whales. And it's still used today in fragrances? Perfume, yes.

Do most people who use perfume that contains ambergris know, do you think, that it comes from whale vomit? I don't know. Apparently it washes up on beaches, and it remains valuable. And what about whale meat? Was that ever a significant part of the American diet? Absolutely not. American whaling vessels just discarded the carcasses of whales once the, you know, they took the blubber, almost like peeling it like an orange, like took the blubber off the outside, removed the baleen in the mouths of the whales that have baleen, and then just discarded the carcass of the whale. So can you give me a nutshell of the role of the whaling industry in how the U.S. economy evolved? In the early to mid-19th century, it was an extremely lucrative and important industry.

And it contributed to the accumulation of profits that were then invested in other industries. So textile manufacturing, a lot of whaling merchants reinvested their profits in textile factories. Railroads are another one. Banking is another one. So if we were to take a really long view and say the American economy evolved as it did over its first few hundred years, because of X, Y, and Z, let's say that X, Y, and Z comprise a pie, what slice of that pie might go to the whaling industry? Directly, it's not going to be huge. The American economy is very large and very diverse,

and there's no individual product or industry that accounts for that much. But indirectly, its contributions were quite important. So if you go back to the colonial period, products derived from whales, were excellent products for exports. And that's very important for the colonial economy. We needed to produce things here that could be exported and produce, you know, hard currency for our economies.

During that colonial era, how much money derived from exporting of whale products was being skimmed by the Crown? Were the Brits profiting as well? Oh, absolutely. So it was required that any products produced by the British colonies had to be exported to Britain. They could be shipped away from there, but it had to go through. through Britain. So that monopoly over trade was very lucrative for Britain. Of course, the American colonists were great at smuggling, and, you know, that's sort of the whole American story, is evading those restrictions. Did those colonial era whaling exporters need a specific

charter from the Crown for exporting whale oil and other whale products? No, this was a business that you could freely enter. It was actually something the Crown encouraged. What the Crown did not want to happen in the colonies was a lot of, say, advanced manufacturing. Things would compete with Britain. They also didn't want a lot of financial development because they wanted the metropole to be the source of finance. But commodities like whale oil, absolutely, they wanted that. Right, because that fit well into their global model. Absolutely. And what sort of interface was there between the whaling industry and government, whether it's a federal government after the formation of the nation or local governments in Long Island, Massachusetts, and so on? So it was recognized by

early federal authorities, including early presidents, that it was really valuable to have a whaling industry for a lot of different reasons. Obviously, it's good to have commercial development. It's also important because people recognize that having more maritime activity, more ships that can prove valuable in cases of naval conflict and so on. In cases where we're in, you know, naval conflicts with other countries like the quasi-war with France, it was important to have the Navy protecting our vessels and so on. So that's a That's really where the federal government comes in. Were whaling ships ever press ganged into military service?

Yes, yes. You know, actually, if you wouldn't mind, I'll advance forward. Whaling vessels were sometimes the victims of the predations of other countries are enemies who sought to inflict economic harm. So the most spectacular example of this is during the Civil War, where the Confederate government persuaded the British to outfit for them private tiering vessels. So these are like private naval vessels. And they went into the oceans in pursuit of any American shipping,

but they knew that whaling vessels were a particularly lucrative target. So the Confederate ship Shenandoah went up into the Arctic Ocean, knowing that there were whaling vessels there and captured a whole bunch of them. And I think burned most of them. Wow. So the point was not to capture the sailors, but to inflict economic harm to make the war painful for the United States. So I'd like to read you a short passage from,

the book Leviathan, The History of Whaling in America by Eric J. Dolan, of all the nations that have hunted whales, none has a more fascinating whaling history than does the U.S. From the moment the pilgrims landed until the early 20th century, whaling was a powerful force in the evolution of the country. Much of America's culture, economy, and in fact its spirit, were literally and figuratively rendered from the bodies of whales. What do you think of that, Eric? an overstatement, an understatement, or maybe just about right? I think it's basically right. There's a broad cultural significance to whaling in our 19th century history that cannot be

understated. And it's also part of the reason why, you know, whaling was an attractive industry for young men looking for opportunities because it offered something that almost, I can't think of any modern parallel today, which is the possibility of adventure, seeing parts of the world that you and I will absolutely never see, you know, parts of the South Pacific, perhaps the Arctic Ocean, the Indian Ocean, and that had a great significance in allure. Coming up after the break, how exactly did the scrappy little American whaling industry come to dominate the sector? And how did Nantucket lose its edge? It was an event in their history

they were not particularly proud of. I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. Okay, okay, a quick recap. The American whaling industry was a behemoth, and in its early years, it was centered around a small island off the coast of Massachusetts. Nantucket was kind of the mobile oil headquarters of its day. That, again, is the author and historian Nathaniel Philbrick. In Nantucket today, he says there is still. evidence of that wealth. Because these historic homes are still by and large there, you can see the pecking order of the island. The captains of the ships would settle on the harbor side of Orange

Street, which goes up a hill. And so you just have these magnificent views of the harbor where they could look at their ships out there. Their mates would stay traditionally on Union Street at the base of that hill and aspire to one day own a house on Orange Street. And meanwhile, the merchants who owned the ships were initially on Pleasant Street that was back a bit away from the clamor and stench of the waterfront. But the whaling industry spread well beyond Nantucket. Here again is the economic historian Eric Hilt. So the beginning of the 19th century through, let's say, the Civil War era, the industry flourishes in the U.S. It peaks in size in about 1850.

There's 40 or 50 different towns that sponsored at least some whaling, but most of it was concentrated in just four towns, Nantucket, New Bedford, New London, Connecticut, and Sag Harbor, New York. Those four places account for about 70% of whaling voyages. And can you draw a modern equivalent to an industry? Does it remind you of anything with? all that concentration? It has some attributes of modern technology industries. So you can think of

places like Silicon Valley in the Boston areas where those firms are concentrated. They're there partly for labor market reasons. There's a deep pool of talent to draw on. They're also partly there for information reasons. It's how you learn about the great opportunities, the new advances and so on. So these specialized whaling ports were like that. They were places where talented merchants and captains were based, but also the information that was flowing there was the most current. And also, you need access to a lot of capital, a lot of supplies, and the suppliers are all there. When you look back at the total history of whaling, is it surprising that the U.S. became the center of the global whaling industry? That's an interesting question. I don't think so.

Whaling was practiced in Europe. Britain, for example, had a decently sized whaling industry that went into the North Atlantic Ocean. But they did it in a way that wasn't terribly efficient. So they were very concerned about doing things in a proper way. Their sailors had these nice uniforms. They always had a surgeon on board. You know, these are costly voyages. So the Americans, and this is characteristic of a lot of American history, the Americans are just scrappy, very, very efficient bare bones operations. And so the fact that they would be successful reflects what you might think of as the American entrepreneurial spirit, but also the American propensity to ignore formalities and not do things in a way that's expensive, but just do things in a way that works.

It sounds like you're describing Uber, maybe. Well, maybe so, maybe so. It really isn't hard to draw parallels between the startup culture in Silicon Valley and the 19th century whaling industry. Consider how the financial returns shook out. The average returns were quite high. They compared favorably to the returns that you could earn on, for example, investments in manufacturing or railroads. But that high average massed tremendous variability, just tremendous variability. The prospect of deeply negative returns was always there. So, you know, the variability is good from the standpoint of a large investor with many different investments,

almost like a venture capital firm today. Indeed, modern venture capital firms are structured very much like the whaling corporations, of the 1830s. They were typically named after the location of their investors. Cold Spring Whaling Company, Wilmington Whaling Company, places like this. There'd be a managing partner called an agent who would organize the voyage, recruit, the crew, put together all the supplies that are needed, possibly also solicit investments from people who invest in whaling voyages.

In order to modulate risk, these investor groups pooled resources and they spread their bets across a portfolio of whaling voyages. They would invest based on factors like skill of the captain, condition of the boat, and the availability of labor. It's all about these really, really excellent voyages with super high returns that offset the gigantic losses that were sometimes suffered. When there was a voyage that failed miserably, what exactly did that failure look like? Was the ship lost at sea? Did they just not find whales? Was there a mutiny and they hung the captain and killed each other? Not finding whales and not successfully pursuing the whales that were found was probably the

leading cause of negative returns. Lost vessels are another one. Now, the vessel itself could be insured, and there were really good markets for insurance for these voyages. Deaths at sea were not uncommon. The process of rendering oil from the whale blubber of raising and lowering casks of oil from below deck to above deck, these huge, very, very heavy things being suspended above the sailors. In heavy weather, as they would say, that's just very, very dangerous, and many people lost their lives.

Also, especially in pursuit of sperm whales, you know, these are aggressive, intelligent animals who would sometimes turn on the whaleboats, so small 20-foot craft and, you know, hit it with their tail, sending everyone flying or in other cases someone gets their arm tied in the line that connects the whale to the harpoon and drowned. So lots of loss of life. It's a little bit difficult to quantify the rate at which that occurred, but it wasn't super low. And it wasn't just the deaths of individuals. Entire ships were often lost at sea. In the 1990s, a team of economic historians found that of the nearly 800 boats that set sail from New Bedford Mass over the 18th century,

more than a third sank or were otherwise ruined. The most famous whale ship disaster was the Essex. Just about every kid in America was learning the story of this ship that was rammed by a whale and Melville would use for the climax of Moby Dick. That, again, is Nathaniel Philbrick. For my money, Moby Dick is America's Bible. It contained everything that makes us Americans, you know, the diversity, the brutality, the spirituality, It's delivery. It's basically a Shakespearean poem about whaling. It is just one of the great books of all time. For me, it's something I take up continually. I've read it at least 12 times. It became the novel that led me to the reality, the history of Nantucket.

The ship in Moby Dick isn't called the Essex. It's called the Pequod. It leaves Nantucket under the guidance of one Captain Ahab, who is, let's say, fully committed to high. hunting down and killing Moby Dick, the white whale that maimed him on an earlier voyage. Several hundred pages after the Nantucket departure, the Piquad finds a whale, which, spoiler alert here, sinks the ship and kills nearly everyone on board other than the narrator, the one who in the book's first line instructs us to call him Ishmael. Where Moby Dick ends is really where the real life story of the Essex begins. Philbrick, remember, wrote a nonfiction book about the Essex tragedy called In the Heart of the Sea. In 1820, the Essex was hunting for whales in the Southern Pacific Ocean when it was attacked by a large sperm whale.

Like the Pequod, the Essex sank, but unlike the story in Moby Dick, all 20 of the Essex's crew survived their encounter with the whale, and they drifted some 4,000 miles in small whaleboats with scarce supplies. The men were reduced to survival cannibalism, and those survivors were just a handful. Only eight of the men were rescued alive after more than 90 days at sea. And those survivors were found clutching the bones of their dead shipmates. This was a story that was news in America and became a real historical, cultural part of America. It was said that you were not allowed to talk about the Essex on Nantucket, because it was an event in their history they were not particularly proud of. This is not something for the Chamber of Commerce brochure. By the time Moby Dick was published in 1851, Nantucket was no longer the world's

leading whaling port. That baton had been passed to New Bedford. New Bedford lies on the Massachusetts mainland. It had been founded by Nantucketers. By the 1850s, it was the wealthiest city per capita in the United States. How did Nantucket lose its lead? Nantucket in the early 1840s was extraordinarily prosperous, but it had a problem. The harbor was too shallow for these large ships that had developed. And so a lot of the whaling trade was going to the mainland, specifically New Bedford. And then in 1846, the island suffered a great fire, which destroyed a third of downtown, all of the waterfront.

And then the discovery of gold in 1848, many Nantucketers said, whoa, with whaling on the decline here, that is the future. Some of the most ambitious Nantucketers sailed their ships to California all the way around Cape Horn at the southern tip of South America in the hopes of finding gold. And those ships were abandoned at the golden gate. To this day, when a new office building goes up in San Francisco, they often find the bones of an old whale ship. So, Nantucket was in steep decline as New Bedford rose, but within just a few decades, New Bedford also lost its grip, and the U.S. whaling industry essentially collapsed. Why? There were several reasons, some of which won't surprise you, but others will. That's coming up in a minute. I'm Stephen Dubner. This is Freakonomics Radio, and we are talking whales.

So how did you get into whaling scholarship in the first place? Was it a case of needing a dissertation topic when you were getting your PhD? I wasn't needing a dissertation topic, but I fell in love with whaling. I visited the New Bedford Whaling Museum, which is a wonderful place to visit, and learn the stories of the industry, all the records that survive, and the fascinating challenges that people in the business faced and just thought, It's an amazing context in which to try to think about how businesses are organized, how compensation works, how risk is allocated and so on. Eric Hilt, you will remember, is an economic historian at Wellesley College, which is about an hour's drive from the New Bedford Whaling Museum.

Hilt is also a top editor at the Journal of Economic History, the flagship journal in the field. It's a small subfield academically, but it's growing. It's an important part of the field of economics, actually. So I love economic history, but it doesn't seem like there's enough of it, or at least not enough good of it. Do you agree? Yes, and I think as new technologies make historical research easier, there's greater interest in it. So there's two goals usually. One is to illuminate deep questions in economic theory. History is like a separate world in which to test economic theories. Another part of it, though, is just to understand how the economy evolved. What are the forces responsible? for the growth of, in this case, the American economy.

What worked and what didn't? What are the deep institutional factors? How did technology play a role? Okay, what would you say were the key differences between investing in maybe a factory that's going to manufacture textiles versus being one of the investment groups you told us about earlier

that are funding these whaling expeditions? The most important difference is that the investments in the whaling ship are much more concentrated. So lots of textile businesses would incorporate and sell shares to investors and maybe have hundreds of owners. Whaling vessels were typically owned by a small handful of investors, often investors who knew personally the agent who was running things. The agent himself, and it was always a he, would typically own about a third of the vessel. So you have very, very concentrated ownership.

And that was important for the success of the voyage because it created powerful incentives for the agent to, make really good decisions and do his job really well, right? That gives him an incentive to work very hard to hire the best captains and do things as well as possible. So as an economist, you probably like that setup. It gets rid of the principal agent problem, right? That's right. It's a way to handle those very extreme principal agent problems that you see everywhere in the business world. The principal agent problem is economist talk for what happens when two people in a business relationship seem to have the same incentives, but in fact may not. It might help us. It might help think of the principal as the boss and the agent as an employee. My Freakonomics friend and co-author

Steve Levitt has a favorite example of the principal agent problem. When the city of Chicago was trying to land the Summer Olympics some years ago, the city was leaning on the police to crack down on prostitution. So the police bosses, the principals, had a strong incentive to make that happen. But as Levitt discovered, while doing a study on the economics of street prostitution, in Chicago, some police on the street had a different incentive because they had an arrangement whereby in exchange for protecting prostitutes from violence or arrest, the cops would get freebies from the prostitutes. And that is an example of the principal agent problem. The city of Chicago didn't get the Olympics, by the way. But what does all this have to do with whaling?

Well, as Eric Hilt learned in his research, as the whaling industry grew, more investors wanted in, and ownership became less concentrated. Some states even granted corporate charters, which shifted the management of whaling ventures from small investor groups to corporate boards and executive officers. This also introduced, at least theoretically, the principal agent problem. That's right. So in an environment where the person handling all important managerial decisions is not a major owner, they just have less skin in the game. There's less at stake for them. In some cases, they were not even owners at all. They were just paid a salary.

And in a case like that, you know, they'll check off the boxes, do what's needed, and that's it. They have very little writing on the success of the voyage. And indeed, on average, those voyages were not super successful. Was there equity or participation by the high-ranking employees? captain and the mates and so on? It was pretty typical for captains to own a small share of the voyages to give them higher power incentives. So that's another unique thing about whaling.

The crews, including the captain, were paid in shares of the produce of the voice. They weren't paid ordinary wages. So that gave them strong incentives in the same sense that the agent himself had strong incentives. But it also meant that, you know, the crew members were bearing a lot of risk. And if the voyage didn't turn out very well, they wouldn't be paid very much. Can you think of a modern parallel in which there's one industry or one pursuit, whaling, right, going on a ship and getting whales, that it's done in these two different managerial ways? One is sort of a corporate model, the other more of a partnership model.

Is there a modern version of that? Okay, investment banking. Ah, yeah, yeah. So investment banks were typically organized as partnerships, but, you know, starting in the 1950s, they began to make the transition from the partnership model to the corporate form. So you have incorporated investment banks. And then the real change happened in the 70s when some of them became not only corporations, but public companies. And when you're an economic historian doing empirical research like that from an industry, you know, 120, 150 years ago, what are you, I mean, I don't mean to be disparaging at all, but what are you hoping will be the best outcome? Are you hoping that some federal regulator might read this and say, oh, look how much more sensible this set up of the industry was then,

to now, for instance, where private equity players can come and go as they please and no one really has any idea where the money's going, et cetera, et cetera. What are you hoping for? Well, so not that. There's no chance of that. But it does contribute to a deeper understanding of how our economy works today, if you think about it. The American whaling industry had been a dynamo from pre-revolutionary days up through the mid-19th century. But now it began to crumble. Did the new corporate structure of whaling firms hasten the end?

Perhaps a bit. But mainly, it was done in by the same thing that destroys nearly every industry over time. Competition. So it becomes possible to make cheap substitutes for whale oil products. Coal gas became a substitute for the use of sperm oil in illumination. in cities, for streetlights especially. Kerosene becomes very widely available, especially after petroleum is mined in Pennsylvania.

That's right. It turned out there were energy sources to be found right here on dry land. You only had to dig up some rocks or sink a drill into the ground. No need for the whole ship voyage, the danger, all that Moby Dick stuff that can happen at sea. Some of these new jobs were also dangerous, but they were plentiful and they paid well. As the country develops and becomes more prosperous, wages are increasing

and the opportunities available to ordinary workers start to become more attractive relative to whaling. And then also, I think part of the appeal of whaling, both to investors and to workers, is the prospect of a lucky bonanza super lucrative voyage. When the industries in decline, the prospect of that diminishes. And also the prospect of having a career in whaling, where you might rise from an ordinary seaman as the rank was called to an officer or maybe even a captain of a whaling boy. So that's also fading into memory. Investment dollars also stopped flowing to the whaling industry.

Nathaniel Philbrick, while researching the history of Nantucket, came across a variety of whaling industry veterans who found other places to invest their money, time, and ideas. Some of the Nantucketers who went west, one of them would be a kid named Jimmy Folger, who would realize. that the way to make it rich isn't mining for gold, it's selling roasted coffee beans to the miners, and that would become Folger Coffee. There would be a Macy who went whaling, got a tattoo of a red star, and realized whaling was in his future. He was going to be a merchant, and he would ultimately open Macy's in New York. The decline of American whaling was also significant for the whales themselves, especially Baleen and Wright Whales, who's populations had been severely diminished. Even today, there are thought to be fewer than

1,000 right whales in the world. Overall, there are an estimated 1.5 million whales of all types across the world's oceans. Before the industrialization of whaling, it's estimated there were between 4 and 5 million. And on Nantucket, there is a lot of residual guilt about the fact that here we have all these knick-knacks with whales on them, which, you know, we all treasure in one way or another, but back in the day, they were what every Nantucket boy longed to throw a harpoon at when he became of age. I think the damage to whale populations has contributed to growing environmental consciousness. And that, again, is Eric Hilt.

But the greatest damage was not actually done by the 19th century American whaling industry. Wait, what? the greatest damage wasn't done by the massive American whaling industry we've been talking about? The damage was done by the modern whaling industry. So the modern whaling industry killed probably four or five times as many whales as the 19th century Americans. So, you know, they're using much more efficient methods, and they hunted whale populations close to extinction. That's right. When the Americans got out of whaling, in large part because there were better job opportunities,

there was another country just starting to up its whale game. It begins in the late 19th century. It's dominated by Norwegians. Coming up next time on the show, how modern whalers used new technologies to take on new species of prey, including the big ones. The blue whales, the largest animal ever to live on Earth,

can be like 100 feet long. When the whales were killed, they pumped them full of air so that they could float. and how after World War II, the U.S. encouraged the Japanese to expand their whaling industry. Whale hunt will help alleviate Japan's food shortage and ultimately save over $20 billion for American taxpayers. That's next time, on the show. Until then, take care of yourself. And if you can, someone else, too. Freeconomics Radio is produced by Stitcher and Renbud Radio.

You can find our entire archive on any podcast app, also at Freakonomics.com. where we publish transcripts and show notes. This episode was produced by Zach Lipinski. It was mixed by Greg Rippin and Eleanor Osborne with help from Jeremy Johnston. The Freakonomics Radio Network staff also includes Alina Coleman, Augusta Chapman, Dalvin Abouaji, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Morgan Levy, Jasmine Klinger, Sarah Lilly, and Teo Jacobs. Our theme song is Mr. Fortune by The Hitchhikers, and our composer is Luis Gera. As always, thank you for listening.

It's hard to sit still. I understand. Whaling is exciting. I'm on the edge of my seat here. The Freakonomics Radio Network, the hidden side of everything.