Pirate Economics: 'The Invisible Hook' by Peter T. Leeson

by: Low Sweat Investing

“Danger lurked in their very Smiles.” - Capt. Charles Johnson, writing about ‘Pyrates’ circa 1724

Like many others, I read recently that an assistant to Michael Crichton discovered a completed, but previously unknown manuscript for a historical novel about pirates secreted on the hard drive of the late author’s personal computer.

My first thought was: “Wow, pirates!”

On reflection, I thought 'what an astonishing treasure this wonderfully thorough assistant had unearthed,' and that it might be fun to do some pirate research of my own, since at the time the Crichton novel wasn’t yet released.

One of my favorite discoveries from that research was Peter T. Leeson’s The Invisible Hook: The Hidden Economics of Pirates (Princeton University Press: 2009).

Leeson is the BB&T Professor for the Study of Capitalism in the Economics Department of George Mason University and a self-professed lifelong aficionado of the golden age of pirates.

And he expresses no doubt that his two passions intersect. Like Adam Smith’s “invisible hand,” Leeson asserts that an omnipresent “invisible hook” of rational choice economics directed pirates’ every move.

Here he is (emphasis in original):

“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. Why, for example, did pirates fly flags with skulls and crossbones? Why did they brutally torture some captives? How were pirates successful? . . . The answers to these questions lie in the hidden economics of pirates, which only the rational choice framework can explain.”

Whew! And you probably thought pirates were just crazy seafaring thieves.

Not exactly, as Leeson’s well-documented and very readable book attests. He covers pirates from bow to stern. In addition to some descriptions of high seas navigation, maneuvers and stealth that border on high adventure, Leeson supplies plenty of counterintuitive, even surprising, revelations about pirates, such as their “one pirate, one vote” method of democracy; written constitutions and articles called “pirate codes” that governed nearly every aspect of their behavior; and their wild approaches to “brand building,” which they used to reduce violent resistance to their plundering. And Leeson explains it all with economics.

For instance, historical documents leave no doubt that pirates practiced a nearly pure form of democracy, including electing the top officers serving aboard their ships, as well as voting on seemingly everything else, including their detailed “codes” of behavior.

Here’s an example, which Lesson quotes from an actual pirate document, complete with strange spelling and capitalization:

“The Lights and Candles are to be put out at eight a-Clock at Night. If any of the Crew, after that Hour, still remain enclined for Drinking, they were to do it on the open Deck.”

What kind of pirate crew votes for ‘last call’ at 8pm? The kind that is economically motivated to be fully rested and ready to rob the next morning.

And what could make them employ terrifying methods specifically designed to reduce violent conflict during their robberies? Economics. Fierce battles brought high costs that ultimately reduced pirates’ time and effectiveness “on the Account,” the charmingly businesslike term they used to describe their vocation.

A couple of fair warnings: Leeson’s descriptions of pirate torture methods, also backed up by historical documents, are definitely not for the squeamish. But neither are they gratuitous, as Leeson shows quite convincingly the “hidden economics” behind pirates’ selective use of these tortures. On the other hand, there seems little point to his brief but strange reflections on pirates’ sexual predispositions. I mention both these cautions in case anyone is thinking the book might be a perfect holiday gift to pique little Timmy’s interest in economics. Think again. Leeson sails past PG-13 in the first 20 pages.

There’s plenty more to the book, including a neat recounting of the details, meanings and origins of the various flags pirates used (the basic “Jolly Roger” skull and crossbones was just one of them); a look at pirate compensation and bonus practices that would make even pay czar Kenneth Feinberg flash a toothy grin; a few pithy pirate management tips; hundreds of historical reference notes; and more.

Bottom line: Peter T. Leeson’s The Invisible Hook is an insightful hoot, and scores a couple of extra points for originality. Economics-minded readers who enjoy historical adventure or relish over-the-top ‘freakonomics’ should get a hearty yo-ho-ho out of this book. Not to mention a 360-degree brain twist before diving into that new Michael Crichton novel.

Disclosure: No financial interests or relationships.