In the six years I spent in the Navy I never remember hearing a reason for the term 'Petty Office' and to be honest never thought about it much. Now in thinking about it, and based on my experience, I'll at least venture a guess. I'd say that by the time you hit E3 you had a little experience and were at least "rated" and had a definite job. With the rating and resultant knowledge came responsibility over the nonrated guys. Now the term Petty officer goes from E3 or Third Class Petty Officer to E9 or Master Chief Petty Officer. As a Petty Officer you were an enlisted man but still had just enough authority to be considered "in charge" of those with a lower rank but not as much as a true commisioned officer. So, in comparison to a true Officer you had a petty amount of authority in comparison to those really "in charge".
Having lived it and made it to the rank of Machinist Mate First Class/First Class Petty Officer/E6 I can say that's a fairely accurate reason even if it's not the right one.
Just did a search, looks like I was right. Here's the explination I found and a link to it. Enlisted Ranks:
Petty Officer
The Petty Officer can trace his title back to the old French word petit meaning something small. Over the years the word also came to mean minor, secondary and subordinate. In medieval and later England just about every village had several "petite", "pety" or "petty" officials/officers who were subordinate to such major officials as the steward of sheriff. The petty officers were the assistants to the senior officials.
The senior officers of the early British warships, such as the Boatswain, Gunner and Carpenter, also had assistants or "mates." Since the early seamen knew petty officers in their home villages they used the term to describe the minor officials aboard their ships. A ship's Captain or Master chose his own Petty Officers who served at his pleasure. At the end of a voyage or whenever the ship's crew was paid off and released the Petty Officers lost their positions and titles. There were Petty Officers in the British navy in the Seventeenth Century and perhaps earlier but the rank did not become official until 1808.
Petty Officers were important members of our Navy right from its beginnings and were also appointed by their ship's Captain. They did not have uniforms or rank insignia, and they usually held their appointments only while serving on the ship whose Captain had selected them.
Petty Officers in our Navy got their first rank insignia in 1841 when they began wearing a sleeve device showing an eagle perched on an anchor. Some Petty Officers wore the device on their left arms while others wore it on their right. All wore the same device. Specialty or rating marks did not appear officially until 1866 but they seem to have been in use for several years previously. Regulations sometimes serve to give formal status to practices already well established.
In 1885 the Navy recognized it three classes of Petty Officers--first, second and third--and in the next year let them wear rank insignia of chevrons with the points down under a spread eagle and rating mark. The eagle faced left instead of right as it does today.
The present Petty Officer insignia came about in 1894 when the Navy established the Chief Petty Officer rank and gave him the three chevrons with arc and eagle. The first, second and third class Petty Officers also began wearing the insignia they do today.
Information borrowed Naval Historical Center NAVAL HISTORICAL CENTER WASHINGTON NAVY YARD -- 901 M STREET SE WASHINGTON DC 20374-5060
Be sure to stop by Marine Corps Wives Website
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