Sunday, April 26, 2009

Peter Leeson's "The Invisible Hook"

Peter T. Leeson is the BB&T Professor for the Study of Capitalism in the Department of Economics at George Mason University.

He applied the “Page 99 Test” to his new book, The Invisible Hook: The Hidden Economics of Pirates, and reported the following:
The Invisible Hook is the story of the hidden economics behind history’s most notorious criminals—18th-century pirates. It uses basic economic theory to analyze and understand infamous pirate behaviors, from pirates’ infamous flag of skull-and-bones to their (alleged) partiality for making prisoners “walk the plank.”

Page 99 of The Invisible Hook discusses how pirates treated merchantmen that resisted their assault: they annihilated them. The economic logic motivating this practice is straightforward. Pirates, who, like other businessmen, were interested in making as much money as possible, preferred prospective prizes to peacefully surrender rather than to fight for them. Fighting hurt pirates’ bottom line; it could injure pirates, kill them, or damage booty.

To encourage merchantmen’s peaceful surrender, pirates adopted a simply policy: show mercy to quarries that submit without a fight and slaughter quarries that resist. This policy, which pirates grimly announced to merchantmen through their infamous flag, raised quarries’ cost of resisting pirates while simultaneously raising their benefit of submission. In short, it worked exactly as pirates hoped.

Of course, for their policy to appear credible, pirates had to follow through on their deadly promise when a wily merchantman dared to resist them nonetheless. As page 99 of my book points out, “Pirate captain Edward Low, for example, ‘had a [victim’s] ears cut off close to his Head, for only proposing to resist . . . [his] black Flag.” Needless to say, such follow-through had the desired effect. Most merchantmen surrendered to their pirate attackers without ado, enhancing pirates’ profit.

But pirates weren’t the only beneficiaries of their policy. Innocent sailors benefited from it too. Sailors were worse off for being attacked by pirates in the first place. But conditional on such attack, pirates’ profit-motivated surrender-or-die policy actually saved sailors’ lives by preventing bloody battle.

In combining basic economic reasoning with the details of pirate history, page 99 accurately reflects the whole.
Read an excerpt from The Invisible Hook, and learn more about the author and his work at Peter T. Leeson's website and his group blog, The Austrian Economists.

--Marshal Zeringue