Privateers and Profit in the War of 1812

During the War of 1812, American privateers captured more than 1,000 British merchant ships as “prizes.” Because privateers were privately owned, and sought profit, not glory in combat, an obvious question is whether they made money. Perhaps surprisingly, determining the profitability of privateers is difficult. Even early in the war, privateer owners petitioned Congress to make privateering profitable by lowering customs duties. Their complaints led two treasury secretaries to use economic theory to try to understand the economic incentives for privateering. Twice, Congress made decisions guided by competing theories, ultimately lowering customs duties, yet apparently the subsidy did not increase the number of prizes brought into U.S. ports.