Book Review: The Invisible HookPosted: July 21, 2011 | Author: Greg Linster | Filed under: Book Reviews | 3 Comments »
Rather than be governed by Adam Smith’s invisible hand, pirates were governed by the invisible hook. Dr. Peter Leeson’s fascinating book, The Invisible Hook: The Hidden Economics of Pirates, examines the anarchical life of pirates through the lens of economics (I’ll call the new genre “pirate pop economics”).
Pirates, despite their life of pillaging and plundering, were no different than the rest of us in terms of how economics dictated their decisions. Like the rest of us, most of the time, pirates made decisions using what economists call a “rational choice” framework, i.e., they were self-interested, rational, and responded to incentives. Again, like us, they were similar to homo economicus, albeit, in my opinion, distinctly different too. As Leeson (who admittedly has a supply and demand tattoo on his right bicep) puts it, “It’s not just that economics can be applied to pirates. Rational choice is the only way to truly understand flamboyant, bizarre, and downright shocking pirate practices.” It’s also one of the only ways to understand certain aspects of non-pirate human behavior too (although, not all aspects of human behavior).
Aristotle, in The Politics, wrote that “man is by nature a political animal”. Pirates too were political animals and leaders emerged on pirate ships in their form of governance. Pirate ships were essentially floating societies of individuals who self-governed however they saw fit.
Although it is admittedly somewhat confusing, it’s important to note that pirates had a democratic governance, without a formal government, i.e., pirates had an informal democracy, but also lived in anarchy. Leeson elaborates on the distinction by noting the following:
Governance is a broader concept than government. If refers only to the existence of some mechanisms or institutions that provide and enforce social rules and therefore create social order. Government is one kind of institution that provides governance, the kind based on a monopoly of coercive power. But it’s not the only kind.
Pirate governance was strict because pirates didn’t have a formal government, yet many people today attempt to argue that society would be chaotic without government. Pirates provide an anecdotal example that this claim isn’t necessarily true; chaos doesn’t necessarily follow a lack of formal government.
Since pirates had no government to discipline them, they had to have much self-discipline to achieve their individual and collective goals. Thus, one of the key lessons of political economy to learn from this book is that there is a difference between government and governance. The former is always based on controlling with force, while the latter needn’t be.
In order to create pirate governance, pirate ships created their own “pirate codes”, which were similar to constitutions. Many buccaneers (who were actually a type of privateer) eventually institutionalized their pirate codes into a set of customary laws known as the “Custom of the Coast” or the “Jamaica Discipline”.
Pirate constitutions not only created rules for quartermasters to follow. They also created what economists call “common knowledge” among crew members about when a quartermaster was overstepping his bounds.
In many cases pirates used their own form of democracy to resolve the paradox of power, which James Madison wrote about in the Federalist Papers. Pirates developed a system of divided power in which crew members democratically elected both captains and quartermasters. In fact, “Pirate democracy extended the unrestricted right to pirates to have a say in the selection of their society’s leaders nearly 150 years before the Second Reform Act of 1868 accomplished anything close to the same in Britain.”
Strangely, the Puritan church’s “covenants” were very similar to seventeenth and eighteenth pirate constitutions. And as Dr. Leeson points out, “America’s Founding Fathers, to borrow the slogan of a popular pirate inspired rum, ‘had a little Captain in them’.”
If you decide to go to college you are, whether you’re conscious of it or not, signaling to potential employers that you’re intelligent (or at least intelligent enough to know that your potential boss will think you’re intelligent if you went to college). Coincidentally, the famous pirate flag, the “Jolly Roger”, was also used for signaling purposes. Again, economics can help us understand the purpose of the “Jolly Roger”.
Dr. Leeson explains how, because of the economics of signaling, pirates wanted to be perceived.
Pirates’ superior strength, in conjunction with our image of them as blood-lusting, battle loving, and downright fiendish curs, would seem to suggest they were happy to engage in, and indeed devishly hoping for, a good brawl, complete with booming canons and clashing cutlasses. But just the opposite was true.
Contrary to popular myths, pirates wanted to avoid these type of conflicts. They wanted to be known for those things, but like any rational and self-interested agent they wanted to avoid having to put their money where their mouth was. If they could signal terror in others and avoid a physical conflict in their hijacking it was clearly in their self-interest.
In the same way, most of us would, I presume, prefer that a potential employer find the fact that we have college degree to be a valuable signal, otherwise they may make us take a math test to see if the signal is reliable.
Presumably, pirates loathed merchant ships that were either unaware of or unafraid of the “Jolly Roger”. This meant that would have to incur the any potential costs that may come from a fight, such as losing pirate lives and other resources. How could pirates make sure their flag sent the proper signal? Again, we can look at college degrees to help illustrate the concept.
The ubiquity of college degrees amongst job seekers in today’s economy has resulted in cheap talk signals, i.e., the college degree, due to its ease to obtain nowadays, is not a reliable signal for intelligence because almost anyone can get a degree. I suspect this is the reason I have been forced to take math and computer tests for job interviews in the past. Similar to what’s happened today with college degrees, pirates had to make sure they weren’t using cheap talk signals either.
Thus, when the time arose, they would have to follow through and demonstrate that they meant business through violence. By the same token, however, merchant ships that cooperated with them were not dealt with ferociously and weren’t ruthlessly pillaged. If they did otherwise, it would give the merchant ships an incentive to fight back because pirates weren’t true to their word. Leeson suggests that pirates would have said something like the following. “If you resist us, we’ll slaughter you. If you submit to us peacefully, we’ll let you live.”
The pirates had an incentive to treat surrenders reasonably well since the cooperated with them in order to further enhance the pirate reputation that those who surrender and don’t put up a fight will get away unscathed. This is because pirates too would get the benefit of the merchant ship’s goods while coming away unscathed themselves.
It’s common to associate the “goodness” or “badness” of behavior with the “goodness” or “badness” of the motivations that drive it. But the nobility or ignobility of individuals’ motivations often bears no relationship, and in come cases even exhibits an inverse relationship, to the nobility or ignobility of the outcomes these motivations create. Sometimes the basest of intentions can produce the best of outcomes.
Contrary to popular belief, pirate life was more orderly and honest than many of the modern myths portray. Pirates, despite the fictional accounts we’ve conjured up about them, were economic agents not all that different from your average person today. Economic concerns, not lofty ideals, were the driving force behind the civilized parts of pirate behavior. Thus, many modern politicians stand to learn something from seventeenth and eighteenth century pirates. As Leeson puts it, “A pirate ship more closely resembled a Fortune 500 company than the society of savage schoolchildren depicted in William Golding’s Lord of the Flies.”
Brilliantly, Leeson has created a wonderful new genre of “pirate pop economics”. In the end, he reminded me that pirates, like us modern humans, shouldn’t be entirely classified as homo economicus; however, we are very closely related to the species. I will be recommending this book to anyone interested in economics and/or pirates. I almost forgot to mention that Leeson used the book’s dedication to propose to his fiancee. And who said economists can’t be romantic?
 This situation has actually happened to me in the past, but luckily I was able to back up my signal and passed the math test with flying colors.