This post is part of the Kluge Center’s 25 for 25, in honor of the Kluge Center’s 25th anniversary, celebrating 25 books that were written thanks to the Kluge Center’s support. Read the introductory post to the series here.
You have probably heard the phrase “you are the master of your own destiny.” In contemporary society, we are encouraged from a young age to plan for the future, especially around finances. Hence, we purchase insurance policies, invest in diverse portfolios, build credit, and save for emergencies and retirement. Risk, both personal and institutional, is viewed as manageable and is actively planned for. But this has not always been the case. Before the 19th century, tragedies such as disease, natural disasters, bad harvests, or deaths were seen as “acts of God.” With this providential origin, risk management was considered fruitless at best and morally wrong at worst. Perils were not to be managed, but were something you had to endure.
In his book Freaks of Fortune: The Emerging World of Capitalism and Risk in America (Harvard University Press, 2012), historian Jonathan Levy traces the emergence of the modern concept of risk in 19th-century America. Before the 19th century, “risk” was a technical term used in marine insurance, Levy explains. It was the commodity bought to ensure financial compensation in the case of a “peril of the seas” or “act of God.” America, at the time, was largely rural and agricultural. This meant that most financial risk was handled informally through the diversification of assets, including land. Held assets rather than financial institutions provided a hedge.
Levy shows how the definition of risk evolved as commerce grew. Important factors in this process, he notes, included the end of slavery, the full advent of the Industrial Revolution, the development of the American West, and the rise of the American corporation.
In the 19th century, recounts Levy, Americans had described the volatility of markets as “freaks of fortune.” “Freaks” were extreme, sudden, and unforeseeable turns of wealth, either good or bad. As attitudes and institutions evolved, individuals began looking to financial institutions for protection from these booms and busts. Savings accounts, life insurance, bond instruments, futures markets, and mutual aid societies were among the new financial technologies Americans came to rely on.
Levy illustrates this transformation through vivid case studies. He looks at a wide cast of representative characters, such as “the rebellious slave, the abolitionist actuary, the proslavery ideologue, the financial speculator, the farm housewife, the fraternal brother, the corporate executive.” In chapter three, for example, he examines Elizur Wright, Jr. (1804-1885), an abolitionist from northwest Connecticut and a leading figure in life insurance reform. After traveling to London in 1844, Wright initiated a campaign to prevent the development of a secondary marketplace in the United States where individuals could sell their life insurance policies. He became averse to this practice after witnessing free Englishmen reselling their life insurance policies at an outdoor auction block in London because they could not afford the premiums. The new holders of these policies would pay the premiums until the original individual died, at which point they would receive the benefits.
Wright sought to limit the commodification of human life in a free society, believing that it undermined a person’s self-ownership. Wright also developed the first American actuarial tables and played a key role in regulating other aspects of the life insurance industry. Thanks in part to his efforts, the value of active life insurance policies expanded dramatically in the 1860s from just over $100 million to more than $1 billion.
Levy also discusses the four million newly emancipated individuals who, after the Civil War, entered a capitalist economy. Their newly acquired freedom came with some additional responsibilities because they were now required to assume the full brunt of economic risk around their livelihood, with little institutional support. The vision of freedom that developed in this period, says Levy, connected self-determination to mastery over personal financial “risk.” But ironically, managing that risk often required a new form of dependence on financial corporations to which personal risk could be offloaded.
The Freedman’s Savings and Trust Company, known as Freedman’s Bank, was founded in 1865 to help formerly enslaved people save money and build financial security. Frederick Douglass, who was appointed president of the bank in its final years, reflected on the contrast between “Frederick the slave boy” and “Frederick, President of a bank counting its assets in the millions.” Regrettably, the bank collapsed in 1874, due to the prior year’s financial panic, highlighting how financial fortunes were still at the mercy of chance, but also, more significantly, of lingering systemic inequality. You can listen to Levy discussing some of these themes during a Kluge Center lecture here.
Levy wrote “Freaks of Fortune” in part as an American Council of Learned Societies Mellon Fellow at the Kluge Center in 2009. While at the Library, he drew from the papers of Frederick Douglass and Elizur Wright and from records of the Freedman’s Bank. The book received widespread acclaim, winning the 2013 Frederick Jackson Turner Award, Ellis W. Hawley Prize, and Avery O. Craven Award from the Organization of American Historians, and the 2013 Cromwell Book Prize from the American Society for Legal History.
This post, and others in this series, does not constitute the Library’s endorsement of the views of the individual scholar or an endorsement of the publisher.