| The Invisible Hook: the Hidden Economics of Pirates |
| Peter T Leeson, Princeton University Press, 2009, 296 pages, £16.95. |
| Described as a marriage between the author’s twin passions of economics and 18th century piracy, The Invisible Hook should surely be the nadir of pop economics. Here is a subject that surely has the substance to be a chapter at most – but a whole book? And a subject as irreverent as piracy? Even its title portends a wearily simplistic application of free market principles to buccaneering life on the high seas. |
| Yet Peter Leeson’s highly readable book is full of surprises and will likely overturn no end of assumptions most people hold about pirate life. Take for example the sadistic reputation of pirates. The historical record is not in doubt about the torture and mutilation resistors could expect, but Leeson illustrates clearly how selective violence was a way of reducing the cost of piracy (by reducing the likelihood of violent resistance) and thereby increasing the profit payout to the pirate crew, making piracy an attractive venture for prospective crew members. Far from a blood lust, piratical sadism was a ‘calculated’ response to their peculiar incentives. |
| Leeson begins his analysis with a comparison of merchant and pirate vessel ownership structures and the principal-agent problem this generated. Merchant ships were owned by absentee entrepreneurs who contracted a captain who in turn enlisted a crew. Captains’ interests were aligned with owners through ownership stakes in the ship. But the absentee owner also required his captain to have absolute power over the crew to ensure they behaved in line with his own interest. This led to unspeakable predation by captains which went unchecked by the government authorities given the circumstances. This cruel life in merchant shipping provided part of the attraction to piracy, but this was only sustainable because pirates had a superior form of organisational structure to autocracy. Pirates were thieves for sure, but the fact they stole their vessels meant they also owned them: in contrast to merchant ships, in the case of pirate vessels the principals were also the agents. |
| This basic structure allowed, indeed encouraged, pirates to embrace a sophisticated democracy, complete with separation of powers between captain and quartermaster. This also created powerful incentives for relatively equal sharing of booty and fairly strict adherence to ‘pirate codes’ – far from a Hollywood invention, but actual written constitutions ensuring the normal hardships at sea weren’t confounded by costly infighting amongst the pirates. |
| In the best chapter, entitled “An-arrgh-chy”, Leeson introduces concepts of political economy and the work of Tullock and Buchanan to explain how these detailed and all-encompassing pirate codes evolved and why they were adhered to. The answer lies in the trade-off between decision-making costs – the costs of arriving at the set of rules that people adhere to – versus external costs. These are the costs of living under a system of rules that one does not agree with. Hence external costs under unanimity are zero. Pirates, living entirely at sea, with their fortunes tied to the efforts of their compatriots, required a system of governance that everyone abided by. Consequently the actual identity of the captain was relatively unimportant; that is, the external cost of voting for the ‘wrong’ captain was quite low given that all pirates had to adhere to detailed rules governing behaviour, and frequent voting meant unpopular captains could be ousted by popular consent. |
| The book concludes with a chapter to explain the relevance of this analysis to contemporary corporate structures. This is perhaps a necessity to avoid the book looking like an interesting but ultimately irrelevant piece of work for today but Leeson does himself a disservice. The Invisible Hook is irreverent, fun, yet insightful and many readers are likely to find this a more entertaining and educational application of important economic concepts than many comparable texts on business and commerce. |
Nooman Haque
Gatehouse Bank |