Thank you! It's a really cool suggestion. I've read just about everything Lovecraft ever wrote, so I'll check out this book. Seems like it's been made for me.
Yes, there's absolutely going to be some kind of sanity, or morale stat in the game. I think It'll have a global Crew Morale, and an individual stat for the main officers, namely the Captain, Chief, 1st Officer, and maybe beyond that 2nd officer and Radio operator, but I'm not sure. Morale will affect the crew and officers ability to perform their tasks.
As to choosing your crew, it's a bit more complicated. Historically, captains were not the ones picking their crew members. Crews were assigned more or less at random, and they had to make the best of it. However, from a gameplay standpoint, It's fun to be able to select your people, and there is stories of captains who had enough influence in the navy to handpick some people, or pull strings as to whom they would get, and even what boats or missions they would command.
The way I see it, as the game progresses, and the more experienced and decorated your captain becomes, you'll get more political influence and the opportunity to pick your main officers from a constantly changing pool of available officers, a bit like you select your new party members from the caravan in Darkest Dungeon. This makes sense from a historical standpoint, and it's a fun gameplay feature.