I read Peter Leeson’s The Invisible Hook: The Hidden Economics of Pirates a few months ago, but now I have time to write out some thoughts on his entertaining and educational book.
Leeson is a professor of economics at George Mason University, where the default ideology favors free markets and the norm of public engagement means that many professors are active with blogs, podcasts, and popular books.
Leeson’s Hook fits squarely in that tradition by explaining how pirates managed to plunder without fighting each other or getting caught.
Leeson’s central question is: “How can pirates cooperate without appeal to the formal authorities that most of us rely on to maintain order and promote cooperation?”
The short answer is: By establishing institutions (formal rules and informal norms) that reward cooperation and punish defection. These institutions, Leeson writes, bring wealth to pirates as if “guided by an invisible hook” — a rephrasing of Adam Smith’s famous observation — that investors benefit others as a side effect of pursuing their own profits, i.e.,
He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
As an interesting footnote, consider that the “golden age” of piracy (1716-1726) took place before Smith discussed the invisible hand. I don’t think he was thinking of pirates, but here’s yet another example of academics “discovering” a phenomenon that’s been obvious for ages to normal people.
Contextual preamble done. Now let’s get to my notes on the book:
- Many pirates had been abused as sailors on merchant ships whose (distant) owners gave officers leave to do as they pleased. The resulting cheating and bad treatment (under the protection of law and contract) led many sailors to abandon ship as soon as they could. Pirate ships were “cooperatives” that were owned by their sailors and managed under pirate articles that allowed sailors to fire officers who mistreated them. These “democratic checks and balances” set expectations on officers’ behavior and protected sailors from abuse.
- Pirates flags signaled mercy on surrender but death for resistance. Given their superior firepower, pirates would win most battles, but the best battle was an early surrender. Captains often surrendered to pirates because pirates wanted to steal (the boat owner’s) cargo, not kill them.
- All sailors agreed to the ship’s rules before departure. Changes in the rules required unanimous agreement, which ensured that nobody would be (immediately) disadvantaged by changes.
- Pirates separated power a century before governments did. The captain would decide where to go and how to battle, but the quarter-master was in charge of arms, discipline, and dividing loot.
- Pirate democracy, likewise, predated America’s revolutionary democracy by a century. The crew voted for the captain and quartermaster, and could vote them out for abuse of power (or any reason). The worst captains were turned over to the authorities, who would hang them.
- Near equality on pay also reduced friction. The captain’s quarters were not private. The captain and quartermaster usually received two shares of loot, compared to one for ordinary sailors. The surgeon and carpenter also received two shares, due to their important roles in keeping sailors healthy and the ship at sea, respectively. That said, nothing was distributed until casualties of battle were compensated. This “insurance” maintained morale in a deadly trade.
- Pirates gossiped. Everyone knew which ships were well or poorly run. Given the norm of joining boats for one voyage at a time, pirates would shift to better boats if they could. Such freedom meant captains competed for crews, resulting in Tiebout competition that raised the standards for all pirates. I lean on the same dynamics with my idea of giving everyone on the planet a second passport, which would improve life for citizens everywhere. (Think Uigurs in Chinese concentration camps, Kurds in Turkey, Venezuelans, et al.)
- Pirates made rules to reduce “negative externalities,” i.e., prohibiting women, drinking, and fighting on board, or smoking below decks (where powder was stored). These rules kept the crew united in its mission to plunder other boats and not blow up, respectively.
- Pirates were (relatively) non-discriminatory among each other. They treated other personalities and races equally. They did not force captured prisoners to join them, as that would violate the basic norm of voluntarily agreeing to abide the ship’s constitution. Pirates did not (collectively) keep slaves on ship very often, as the benefit of “free labor” was often outweighed by the cost of losing their boats or lives to a slave’s betrayal. They either invited captured slaves to join as free crew or (more often) sold them at their next port of call.
Leeson’s book gives an entertaining insight into the world of pirates — and the economics under which they lived and prospered (until authorities changed rules and applied far more effort into capturing them around 1730).
My one-hooked conclusion is that that anyone interested in economics (or piracy) should read this book (rather than Freakonomics or Doughnut Economics) because it’s fun and thought-provoking. I give this book five stars.