Book of the week: The Invisible Hook

Buccaneers' business methods capture Michelle Baddeley's eye

June 4, 2009

Pirates are popularly portrayed as "sadistic pacifists; womanising homosexuals; treasure-lusting socialists; and madmen who outwitted the authorities ... They're torturous terrorists who command honest men's adoration." So, on the surface at least, pirates are "a veritable ball of contradictions", but in The Invisible Hook, Peter Leeson deftly explodes piratical myths. He argues that the "golden age" pirates of the late 17th and early 18th centuries were not so puzzling - at least from an economist's point of view. Adam Smith's invisible hand of the market operates for pirates via an "invisible hook" leading selfish pirates pursuing profits to benefit unintentionally their colleagues and others. This was not a reflection of pirates' inherent worthiness but nor were pirates evil madmen. They did their work judiciously and effectively: in the words of pirate Captain Sam Bellamy: "I scorn to do any one a Mischief, when it is not for my advantage."

Different systems of governance on-board pirate versus merchant ships were moulded by economic constraints rather than by moral or ethical principles. Pirates operated beyond the reach of the law, and so private systems of pirate governance evolved to enable the effective pursuit of plunder. Orderly, peaceful and honest behaviour on-board the pirate ship ensured that spoils were plentiful and pirate ships were often better organised than many merchant ships: as Leeson observes, "Pirates take great pride in doing things right."

Nonetheless pirates faced the "paradox of power": authority is necessary but officials have incentives to abuse their authority. In resolving this paradox, pirates were political pioneers employing collective decision-making and adopting relatively egalitarian principles. Pirate captains and quartermasters were democratically elected by a majority of the pirate crew - maximising these officials' incentives to keep their pirate crews content. Further checks and balances were enabled via a separation of powers: the captain was responsible for snap decision-making during battle; the quartermaster was responsible for the equal division of spoils.

Thus the incentives and ambitions of the captain and quartermaster were effectively controlled. There were clear rules and credible punishments; antisocial behaviour was regulated via pirate codes ratified by unanimous support from entire pirate crews. Pirate codes incorporated social insurance and workers' compensation; pirate juries voted for punishments; and interpersonal disputes were resolved via on-shore duels protecting pirate ships from damage. By contrast, merchant ships were usually owned by absentee landlubbers who could not effectively monitor the efforts of their sailors and so centralised power in the hands of one official - the captain, who acted as an agent for the ship owner. Merchant captains monitored the efforts of the sailor crews to discourage shirking, and a captain's own tendency to shirk would be moderated either because the captain was often made a ship's shareholder and/or because familial ties were used to encourage a captain's loyalty. Either way, a merchant captain's predatory and rent-seeking behaviour was encouraged by the concentration of power into his own hands.

Piracy was lucrative but risky; pirates were criminals beyond the reach of the law, and piracy was an offence punishable by death. The risks were compensated by the lucrative spoils on offer and by the better working conditions. Pirate ships were in effect "seafaring stock companies" and a flat pay structure ensured that the plunder was shared more or less equally by all the crew.

Many pirates entered their trade willingly; they were not usually slaves nor were they press-ganged into becoming "forced men". This was because slaves and forced men would undermine the egalitarian ethos of the pirate ship: they would have no incentive to co-operate and might be less productive.

Nonetheless most captured pirates, realising that the courts were more likely acquit a forced man, "rationally reacted to protect themselves" by pretending that they had been "empressed". Pirates used cunning ruses to conceal their willing recruitment to pirate ships including "advertisements of force" (captives released by pirates would advertise in the newspapers that their former shipmates had been press-ganged by pirates and had not volunteered willingly).

Piracy was a skilful operation - not only because of the sailing and navigational skills required, but also in the strategies used to minimise the costs of plunder. Battles were particularly costly because they increased crew casualties, destroyed ships' fabric (making ships costly to repair and vulnerable to attack and capture) and damaged spoils. So pirates favoured "peaceful theft"; they realised that this would enable maximum booty to be extracted at a minimal cost. One device used to minimise conflict was the Jolly Roger flag - the skull and crossbones. Given pirates' fearsome reputation, flying the Jolly Roger would signal to legitimate ships that they were confronting a dangerous pirate ship; fearing retribution at the hands of bloodthirsty pirates, the honest crews would often surrender without a struggle.

Violent conflict was also avoided using the piratical "brand name", which institutionalised pirates' reputations for madness, extreme risk-taking and gruesome tortures - of which walking the plank was the "relatively painless" option. More extreme forms of torture included being cooked alive or forcing captives to eat the severed ears from their own heads. Leeson argues that these awful tortures were used to minimise the costs of capture; they were rational, reasonable and carefully calculated strategies adopted to extract information from captives - about the whereabouts of treasure and to deter witnesses and government officials from pursuing pirates.

A "justice motive" also encouraged pirates to torture predatory merchant captains, particularly if the pirate torturers had suffered at the hands of merchant captains while still legitimate sailors. This torture had social advantages, too, because it discouraged the exploitative behaviour of merchant captains: pirates acted as nautical vigilantes with the unintended consequence that governments did not need to use so many resources in the official regulation of rent-seeking behaviour on-board merchant ships. Nonetheless, torture was not used indiscriminately - surrender was usually met with mercy so captives had strong incentives to co-operate.

On the surface, The Invisible Hook may seem like just another attempt to illustrate "omnipresent economics", but this book does a lot more. Yes, it is an example of economists' imperialism, but it also offers many colourful, meticulously researched insights into the behaviour of some of history's most colourful anti-heroes, and it will appeal to anyone with even passing interests in history, politics, sociology and/or economics.

Are there any enduring lessons? Leeson concludes that his pirates are a hard act to follow: even today's Somali pirates lack the glamour of pirates of the golden age. "Sadly, modern pirates simply aren't as interesting as their golden age predecessors ... Blackbeard, Calico Jack and the rest set a high bar."

THE AUTHOR

The romantic Peter T. Leeson took a gamble with his latest book.

But it wasn't the research or the theories that posed the risk; it was the dedication.

Leeson used the space to propose to his long-term girlfriend, Ania, a decision that meant the dedication page and the preface were absent from all proof copies. In his preface, he says: "I hope she says 'yes'. If she doesn't, I might have to turn to sea banditry." Luckily for the professor for the study of capitalism, his piratical proposal was accepted and he doesn't have to leave his port of George Mason University.

Leeson's seafaring plan is more surprising as his principal research lies in the economic theories of landlocked Austria. Along with five fellow economists, he contributes to The Austrian Economists blog, however, his posts of late are more to do with "m-arr!-ket forces".

The Invisible Hook: The Hidden Economics of Pirates

By Peter T. Leeson

Princeton University Press

296pp, £14.95

ISBN 9780691137476

Published 29 May 2009

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