Retirement Planning and the Whaling Industry

I begin chapter 15 with a story of Nantucket. While for many, the first thing that comes to mind are those bawdy limericks, the village in Massachusetts was once the third largest city in the state behind Salem and Boston.



Whaling was an important source of income for the city and as the video below shows, allowed the world to see after dark. Whale oil was a superior product. The quest for the riches it would provide to those willing to take the risk was often paid for with the lives of the men (and sometimes women disguised as men) who boarded the ships. But when the hunt was successful, everyone was entitled to a lay.



A lay was a fraction of the proceeds of the catch. In Nantucket, the average whaler would receive 1/175 of the proceeds. The Merriam-Webster Dictionary, in an entry dated 1590, describes the nouns as “terms of sale or employment : price b: share of profit (as on a whaling voyage) paid in lieu of wages”.

Elmo P. Hohman wrote an article for the “The Quarterly Journal of Economics” (Vol. 40, No. 4 Aug., 1926) titled “Wages, Risk, and Profits in the Whaling Industry” where he described the method of payment as singular to the whaling industry.

He wrote: “The whaleman was not paid by the day, week or month, nor was he allowed a certain sum for every barrel of oil or for every pound of bone captured. Instead, his earning consisted of a specified fraction share known as a lay, of the total net proceeds of a voyage.” The amount was determined by the skill and efficiency of the person hired.



This sort of partnership is at the heart of your retirement plan. Because of the structure of many defined contribution plans (your 401(k) is a defined contribution plan – you are responsible for making the deposits into the account for your future rather than receiving a set amount from a pension – a defined benefit plan). You are in it as a group, using a single captain – also known as, at least for the sake of this example, the mutual fund manager running your investment) to steer you towards profitability. In turn, each of the participants it entitled to his or her share depending on the amount they have invested.

This so-called partnership in the enterprise, according to John Randolph, who wrote The Story of the New England Whalers in 1909, this also extended to anyone involved in the ship including the boatbuilders, the blacksmiths and the coopers. Each man was working for himself and hoping that the captain was able to give them an adequate return for their efforts.



This may have been the first instance where “past performance, while not a guarantee of future success” was used as a guide to determine which vessel was the best one to sign on to.

I write in the book that like investing, “the seas can get rough, the catch can be nimble and sometimes scarce and worst of all, the world can be awfully unpredictable.”