April 24, 2014

Interview with Peter Leeson, author of The Invisible Hook and Anarchy Unbound

I recently read The Invisible Hook: The Hidden Economics of Pirates by Dr Peter Leeson, about the economics and self-governance of pirates. It’s a fascinating book, and relevant to seasteading, so I asked Dr Leeson if he’d give an interview. He kindly agreed.

Peter LeesonPeter T. Leeson is a professor of economics at George Mason University. He’s known for his work on the economics of anarchy and use of rational choice theory to understand the behavior of societies without government. His 2009 book The Invisible Hook: The Hidden Economics of Pirates examines the economic conditions and incentives that influenced pirate behavior and resulted in their being pioneers of democracy. His latest book, Anarchy Unbound: Why Self-Governance Works Better Than You Think, uses theory and empirical evidence to demonstrate the effectiveness of self-governance.

The Invisible HookThe Seasteading Institute: Centuries after the days of Blackbeard and Calico Jack, pirates still have a reputation as sadistic maniacs. In the Invisible Hook, you write that the best way to understand their behavior is through the same methods of economics we use to understand the way people behave in markets. What is the parallel between Adam Smith’s invisible hand and the invisible hook that guided pirate behavior?

Peter Leeson: According to Smith’s “invisible hand,” by pursuing their self-interests, individuals are led to promote the interests of society’s other members. The “invisible hook” is the piratical analog of Smith’s invisible hand: by pursuing their criminal self-interests, pirates were led to promote the interest of their criminal society’s other members.

Of course, there is a very important difference between the invisible hand and the invisible hook. Under the institution of private property rights, the former facilitates global wealth creation. In contrast, the invisible hook, which enhanced the cooperation of individuals who earned a living by preying on the wealth-creating activities of law-abiding citizens, did the reverse.

The Seasteading Institute: In the absence of government, pirates innovated with governance systems in ways we consider far ahead of their time. What were these innovations, and what caused pirates to adopt them?

Peter Leeson: As I discuss in my book on the economics of pirate governance, The Invisible Hook: The Hidden Economics of Pirates (Princeton University Press, 2009) pirates privately forged a system of constitutional democracy—complete with separated powers and checks and balances—long before the United States developed a similar system of governance and arguably even before England did so. The reason pirates developed this system of governance is fundamentally the same reason articulated for constitutional democracy in the Federalist Papers. Like anyone else, pirates required laws protecting property rights for their societies to function—rules prohibiting and punishing theft, violence, and so on. To enforce such rules, pirates, again like everyone else, required rule administrators—officers. The problem, as James Madison pointed out, is that by endowing officers with the power to enforce rules for society’s benefit, one simultaneously endows officers with the power to wield their authority for private gain at society’s expense. A potential solution to this conundrum, Madison argued, was constitutional democracy, whereby political power is separated, individuals compete for office, and constitutions create bright-line rules delimiting officers’ authorities. Pirates came to the same conclusion, which led to their system of constitutional democracy—but more than half a century before Madison put pen to paper.

The Seasteading Institute: Without a government to enforce worker’s rights, what prevented pirate captains taking advantage of the crews that volunteered with them?

Peter Leeson: Pirates’ system of constitutional democracy, which I was just telling you about. Captains and other major officers aboard pirate ships were elected popularly by crewmembers and could be popularly deposed by crewmembers for any reason. Thus, a power-abusing captain did not last long. Equally important, pirates’ system of governance divided authority between the captain and another officer called the quartermaster. The latter was actually in charge most of the time on pirate ships—any time the ship wasn’t engaging prey. Because of this division of authority, captains had limited authority they might abuse. In addition to this, pirates enshrined all the rules captains and other officers were to follow in written constitutions they called their “articles of agreement.” These “pirate codes,” which all crewmembers had to consent to before they could join a pirating expedition, ensured that crewmembers knew when their captains or other officers were violating crew-established rules and helped coordinate crewmembers’ response to such abuse, for example by voting an abusive captain out of command.

The Seasteading Institute: The theory of a social contract – the idea that members of society accept the government’s authority in order to maintain a functioning society – is controversial because we don’t explicitly agree to such contracts. How did it come to be that pirates, possibly uniquely in history, did have such social contracts?

Peter Leeson: This is an important question, but a big one. Rather than attempting to do justice to it here, I recommend that interested readers check out what I’ve had to say about this subject in The Invisible Hook.

The Seasteading Institute: The Jolly Roger was not just a terrifying symbol. How did the iconic flags of the pirates decrease costs and improve safety for pirates?

Peter Leeson: In The Invisible Hook I introduce the Jolly Roger as a form of piratical signaling. The full explanation for this practice would take too long for me to explain here, but the gist of my argument is that pirates used their unique flags to distinguish themselves in the eyes of merchant ships from other potential attackers that such ships might encounter along early 18th-century trade routes, who were less ominous than pirates. Merchant ships were happy to resist the less ominous attackers, but they feared pirates and so wanted to acquiesce to pirate attackers. Pirates benefited from this situation because battling prizes was costly: merchant ships that acquiesced to their advances saved pirates valuable loot. The problem was that merchant ships couldn’t tell simply by looking at a ship that was coming up on them whether it was a pirate ship or not, so they were liable to end up battling pirate ships mistakenly, which harmed both them and pirates. To solve this problem pirates required a signal—a way of communicating their identity to merchant ships that less ominous attackers wouldn’t find profitable to copy. The Jolly Roger was the signal pirates adopted for this purpose.

The Seasteading Institute: Pirates were famously sadistic, but you’ve written that this has more to do with incentives than with cruelty. What drove pirate incentives for torture and clemency?

Peter Leeson: The profit motive. If pirate captives hid or destroyed loot to prevent it from entering pirate hands, this negatively affected pirates’ bottom line. To deter such behavior, pirates invested in cultivating reputations as “hair triggers”—men who would unleash vicious cruelty on anyone they so much as expected might be holding back booty. But equally important for such reputation building to improve pirates’ profit was the other side of the reputation coin, which pirates were equally concerned with: not going ballistic on captives who complied with pirate demands. If pirate captives expected to be brutally tortured whether they delivered their goods to pirates or not, they would’ve had no incentive to give pirates what they wanted. Pirate torture wouldn’t have worked. Thus, at least as often as one finds pirates torturing some poor captive who pirates suspected of holding back loot, one finds pirates being kind—even generous—to captives who immediately delivered up all that they had to their pirate attackers. There was a financial penalty for sadism in piratical production much as there is a financial penalty for, say, gender discrimination by firms operating in legitimate free markets.

The Seasteading Institute: How fast did pirate code innovations spread? Is there evidence of particular articles of Pirate Codes being invented and spreading to other ships? Did ships tend to converge on mostly the same kind of Pirate Code, or did multiple competing societal visions emerge?

Peter Leeson: It’s difficult to say exactly how fast the basic elements of pirate codes spread. But given that most pirate crews can be traced back to just a handful of pirate captains, and given the fact that the “golden age of piracy” lasted only 15 years or so, meaning that it could not have taken longer than this for pirate code elements to spread, I think it’s safe to say that they spread relatively quickly.

There is some variation in the particular provisions one finds in different crews’ pirate codes, for example in the sums crewmembers were to receive as workman’s compensation if they were injured on the job, or in regulations regarding smoking on the ship. But the basic elements of pirate constitutions across crews were very similar. This is unsurprising from an economic perspective since we would expect the rules adopted by various crews to reflect their particular problem situations, and the particular problem situations confronted by different crews, which were engaged in the same activity, composed of the same kinds of individuals, etc., were very similar.

The Seasteading Institute: How stable was holding pirate office? Was transfer of power usually peaceful, or did it routinely result in marooning? If it was peaceful, would captains usually continue to serve as crew?

Peter Leeson: Power transfers rarely involved violence and typically followed the rules associated with such transfers established by crewmembers. Often this involved marooning for captains who were removed from power for violating the crew’s articles. When instead strong intra-crew disagreements about, say, where to sail in search of prey were the reason for power transfers, usually the dissenting groups seem to have simply divided peaceably and gone their separate ways.

The Seasteading Institute: How much is known about the governance of other pirates, like the 19th century South China pirates? Did incentives exist for similar political innovation? To what degree does modern piracy (such as that of the Somali pirates) resemble the piracy studied in The Invisible Hook?

Peter Leeson: This is something I’m still studying. 17th-century pirates—the buccaneers—had quite similar governance arrangements to their 18th-century successors. 19th-century Chinese pirates appear to have had quite different governance arrangements, which were much more hierarchical. Somali pirates are a different bird altogether. Unlike the other pirates I just mentioned, these pirates don’t typically sail in large numbers and don’t live and work together for long periods of time at sea. In this sense they don’t confront the same kinds of social problems that the other pirates did, so they don’t have a need for the same kind of elaborate systems of governance. On the other hand, since Somali pirates, too, are engaged in the same basic activity—maritime banditry—there are similarities that give rise to some governance-type similarities, such as provisions for piratical social insurance.

The Seasteading Institute: Between voyages, pirates spent time on land at one of the pirate bases, and could potentially join other crews. But then who owned the pirate ships?

Peter Leeson: Pirate ships were like sea-going cooperatives. They were owned, and operated, jointly by their crewmembers.

The Seasteading Institute: You’ve also studied political structures in other groups that exist outside normal political systems, like the Sicilian Mafia. The Mafia and the pirates developed very different governance structures. What were these differences, and why did they occur?

Peter Leeson: I studied this question in an article entitled “Organizing Crime” coauthored with Doug Rogers, which was published in the Supreme Court Economic Review. Interested readers can download the paper from my website. We argue that the governance structure observed in criminal organizations in different illicit markets depends heavily on how contestable that market is “naturally”—i.e., how strong competition from other criminal producers is likely to be before governance emerges. Where contestability is naturally high, as it was in the case of the private protection industry in Sicily before the Mafia formed, we argue that one can expect hierarchical governance to emerge to enable collusion between criminal producers that prevent the erosion of criminal profit in the industry. Thus one observes hierarchy in the Sicilian Mafia. In contrast, where contestability is naturally low, as it was in the case of the maritime banditry industry in the 18th-century Caribbean, we argue that one can expect flatter governance to emerge since collusion is unimportant to preserve returns and flatter governance can prevent opportunism by organizational heads. Thus one observes very little hierarchy among 18th-century pirates.

The Seasteading Institute: You mentioned seventeenth- and eighteenth-century Puritan church “covenants” forged by New England settlers. Do you know of other interesting examples of small groups improvising governance?

Peter Leeson: Much of my academic research examines precisely this question. The answer is yes, although the styles of self-governance vary considerably, as does their comprehensiveness—a reflection of the particular social problems that various people in various times and places confront in the absence of government. You can read about several such groups, ranging from citizens in 16th-century England and Scotland to contemporary Somalia, in my new book on this subject Anarchy Unbound: Why Self-Governance Works Better than You Think.

Anarchy UnboundThe Seasteading Institute: Tell us more about Anarchy Unbound. What’s this book about, and who should read it?

Peter Leeson: Anarchy Unbound (Cambridge University Press, 2014) is a response to popular challenges to self-governance’s effectiveness under “hard-case” scenarios—scenarios in which the most commonly discussed institution of self-governance, reputation or the “discipline of continuous dealings” is insufficient to support social cooperation. Such scenarios include, for instance, when society is large and consists of socially diverse individuals; when the prospect of violence looms large; when the members of society are bitter, embattled enemies; when the members of society are devoted to theft and violence as a way of life, and so on. Anarchy Unbound uses theory and empirical evidence to demonstrate the effectiveness of self-governance grounded in mechanisms that go beyond simply reputation in such contexts. It demonstrates the robustness of anarchy to hard-case scenarios.

The book also addresses what I consider to be the “hardest case” for anarchy—systems of self-governance that outperform state-provided governance. According to conventional wisdom, while self-governance may be effective in limited contexts, even then, it remains inferior to government in terms of its ability to enhance welfare. There are no wealthy anarchic societies, for example. The final part of my book argues against this conventional wisdom. I explain why the approach that conventional wisdom takes to this comparative question is mistaken, what the correct approach consists of, and then I go on to provide empirical evidence of contemporary cases of anarchy outperforming government.

Anarchy Unbound reflects the culmination of my thinking and writing on self-governance to date and will be of interest to anyone who is interested in a positive analysis of governance without government and the role of the state regardless of field or ideological disposition. Most of the books currently out there on anarchy are normative and theoretical in nature. As I say, mine is not—its analysis is positive and largely empirical—which I hope will help provide an important element often missing in discussions of anarchy. I’m very excited about the book’s publication.