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To have a chip on one's shoulder refers to the act of holding a grudge or grievance that readily provokes disputation.
History
"A chip on the shoulder" comes from the ancient right of shipwrights within the Royal Navy Dockyards to take home a daily allowance of offcuts of timber, even if good wood was cut up for this purpose. The privilege was instated as a prescriptive right from 1634. By 1756, this privilege had been abused and was costing taxpayers too much in lost timber for warship repair and construction. The decision was then made by the Navy Board to limit the quantity a shipwright could carry home. A warrant was issued to the Royal Dockyards to reduce the quantity of chips by ordering shipwrights to carry their bundles under their arms instead of on their shoulders, as one could not carry as much timber in this fashion. The specific incident from which the expression derives is as follows:
This custom is known in North America since the early 19th century. The New York newspaper Long Island Telegraph reported on 20 May 1830 "when two churlish boys were determined to fight, a chip would be placed on the shoulder of one, and the other demanded to knock it off at his peril". A similar notion is mentioned in the issue of the Onondaga Standard of Syracuse, New York on 8 December 1830: "'He waylay me', said I, 'the mean sneaking fellow - I am only afraid that he will sue me for damages. Oh! if I only could get him to knock a chip off my shoulder, and so get round the law, I would give him one of the soundest thrashings he ever had'." Some time later in 1855 the phrase "chip on his shoulder" appeared in the Weekly Oregonian, stating "Leland, in his last issue, struts out with a chip on his shoulder, and dares Bush to knock it off". In American author Mark Twain's 1898 manuscript of "Schoolhouse Hill," character Tom Sawyer states his knowledge of the phrase and custom when he says, "[I]f you want your fuss, and can't wait till recess, which is regular, go at it right and fair; put a chip on your shoulder and dare him to knock it off."
In Canada, the custom is well described at St. Peter Claver's Indian Residential School for Ojibway boys in the town of Spanish, Ontario:
The challenger might further provoke his opponent by issuing a dare for him to knock off the chip. The opponent might then display his bravery and contempt by brushing the cheek of the challenger lightly as he did so. In more formal cases, a second might take the chip and present the chip to his man who would then place it on his own shoulder. The boys would then square off and fistfight like boxers.