The British Navy and the Extensive Margin
David Ricardo, arguably the first great economic theorist, distinguished between the intensive and extensive margin in agriculture. Increases on the intensive margin consist of getting more output from land already being cultivated. Increases on the extensive margin consist of getting output from land previous not cultivated.
In an old post, I applied Ricardo's distinction to research projects, in particular in his and my field. The intensive margin involves trying to say something new and important about a question that smart people have been looking at for a long time. An example would be the question of why involuntary unemployment sometimes exists, and what can be done about it.
That is an important question, sufficiently important so that many non-economists seem to consider dealing with it the chief business of economists. But it is also a question which quite a lot of very good economists have been working on for a long time, which makes it difficult to say anything both new and interesting about it. Another example would be game theory. I like to defend my disinterest in being more than an observer of that field by explaining that, when looking for problems to work on, problems that stumped John Von Neumann, one of the most brilliant thinkers of the Twentieth Century, go at the bottom of my pile.
One unfortunate consequence of the difficulty of such questions is that anything new is quite likely to be either uninteresting or wrong. That is an implication of what I refer to as the rising marginal cost of originality, a principle I usually illustrate with examples from city planning and architecture. My favorite example of the latter is, for those familiar with it, the Coombs building at Australian National University, a truly inspired piece of bad design in which I once spent part of a summer.
What about the extensive margin? An example I am fond of is the work Peter Leeson has done on applying economics to making sense of 18th century piracy; curious readers will find it in his book The Invisible Hook. Because nobody, so far as I know, had thought of doing it before, Leeson was able to produce interesting results by applying conventional economic analysis to a subject that specialist historians had researched but economists knew very little about, to the benefit of both fields.
As I mentioned a few posts back, I recently read the most recent novel in the most recent series dealing with the British Navy during the Napoleonic war—a series that departs a little further from history than its predecessors by providing the British and their enemies with dragons, and makes a very good story out of it. Having done so, I was inspired to start rereading the series and am now in the middle of the first volume.
Dragons aside, Novik's picture of how the navy was organized appears reasonably accurate—although I confess that my basis for that belief consists mostly of other novels, one written by an author who had been an officer in the navy during the Napoleonic wars (Frederic Marryat, who invented the genre) and two series by modern authors who appear to have done a careful and competent job of mining primary sources for their background. The internal structure and the associated rules and customs of the navy seem very strange to a modern eye, but it was a strikingly successful institution, which should also make them interesting. I expect it has gotten a good deal of attention from historians, but I am not aware of any work by an economist analogous to Leeson's on piracy.
One of the features of those institutions particularly likely to catch an economist's eye was prize money. If a naval vessel captured a legitimate prize, an enemy warship or merchantman, and brought it back to port, the vessel and its contents were sold and the money distributed among those in some sense responsible. One large chunk went to the captain, another was distributed among his officers, a third among the crew. And part of the money went to his superior, the admiral under whose orders he was operating.
One can imagine a variety of ways in which the resulting incentives might have made the system work better or worse. The particular one that struck me was the final division. An admiral might have all sorts of reasons, personal or political, to favor one captain under his command over another. But he had a very direct self-interest in providing opportunities to whatever captain was most likely to take advantage of them, whether or not he liked him.
A second interesting feature was the role of patronage, political influence both within the navy and outside it, in the career of an officer, especially a young officer. The critical step was promotion from lieutenant to captain. It depended in part on performance, in particular on the opinion of the captain under whom a lieutenant was serving. But it depended also on things that seem, to us, irrelevant.
One of the passages in one of Patrick O'Brien's novels that particularly struck me was a conversation between Maturin, one of his protagonists, and a young officer of aristocratic birth who is a friend of his. The young officer is asking the older man for advice. He has been having an affair with the separated wife of a high naval official and wants to know whether he should live openly with her. Maturin's response is that, moral issues aside, it might be imprudent for the officer to offend a powerful official and so risk his future career. His friend replies that he has considered that matter, but his family controls a significant number of seats in both houses of parliament and he thinks their influence is sufficient to balance that of the man he will be offending.
Neither party seems to see anything strange in either half of the argument, either the assumption that giving personal offense to someone within the bureaucracy will make it harder for a competent officer to be promoted, or that having a politically influential family will make it easier. That is simply taken for granted, part of how the system works. Yet it was a system that produced extraordinarily successful results.
A third feature was the seniority system. Once a lieutenant was promoted to captain, his future rank depend only on how long he survived. His name was on the list of captains, the list was ordered by strict seniority, and the next captain to be promoted to admiral would be the one at the top of the list.
When two or more captains were working together, it was the senior who commanded. That provided an unambiguous rule for allocating command—every captain knew where he was on the list and knew, or could readily find out if necessary, where any other captain was. But it was a rule that had nothing to do with the relative competence of two officers of the same nominal rank.
Promotion beyond captain was entirely a matter of seniority, but what the officer got to do with his rank was not. A sufficiently incompetent captain who made it to admiral would end up as an admiral of the yellow, an admiral without a fleet, effectively retired on half pay. A sufficiently competent captain could be assigned particularly important duties, including the command of a group of ships with the temporary position of commodore—provided none of the other captains in the squadron was senior to him.
As I hope these examples show, it was an odd and interesting set of institutions. And it worked. I suspect that a good economist willing to immerse himself in the primary and secondary literature could provide interesting explanations of why. It is possible that someone has already done it, but if so I have not come across the work; if any of my readers have, perhaps they can point me at it.
If not ... . It would be a more interesting doctoral thesis than the hundredth exploration of some more conventional set of questions.