074: Peter Leeson on The Invisible Hook: The Hidden Economics of Pirates

Peter T. Leeson is Duncan Black Professor of Economics and Law at George Mason University.

He is also a Senior Fellow at the F.A. Hayek Program for the Advanced Study of Philosophy, Politics, and Economics as well as the North American Editor of Public Choice.

Formerly, Peter was Visiting Professor of Economics at the University of Chicago, Visiting Fellow in Political Economy and Government at Harvard University, and F.A. Hayek Fellow at the London School of Economics.

Peter is author of The Invisible Hook: The Hidden Economics of Pirates and Anarchy Unbound: Why Self-Governance Works Better Than You Think.

Peter can be found at PeterLeeson.com.

Economists:

In this episode, Peter mentions and discusses: Ludwig von Miss, F. A. Hayek, Gary Becker, Karl Menger, Steven Levitt, Robin Hanson, Karl Marx, Adam Smith and Peter Boettke.

Economics:

In this episode, Peter mentions and discusses: price theory, human behaviour, Austrian Economics, Chicago School of Economics, economics of self-governance, rational thinking, profit maximisation, incentives, social insurance, externalities, unemployment, governance, self-governance, public goods and rational choice theory.

Pirates were economic actors but they were criminals. Criminal behaviour, as some had suggested, is not very amenable to the economic way of thinking.But Gary Becker pioneered research demonstrating that that wasn’t so.

In this episode you will learn:

• about the similarities and differences between Austrian Economics and Becker’s thinking in the Chicago School of Economics.

• why Peter decided to study the economics of pirates.

• about the scientific approach to economic thinking.

• how limitations to data restrict analytical research and how historical economic thinking can be used as a form of empirical analysis.

• how using the economic narrative is just as effective as the mathematical regressions to explain theoretical concepts.

• the similarities between The Invisible Hand and The Invisible Hook.

• how pirates were rational thinkers and social revolutionaries.

• how a hierarchy was established on a pirate ship using the Pirate Code.

• how the Pirate Code created a social order that was economically beneficial to the crew.

• about the constitutional democracy that pirates established onboard their ship and the misperceptions we had of an autocratic captain.

• about some rules, codes of conduct and dispute resolution mechanisms that existed on a pirate ship.

• how pirates were incentivised to engage in battle with a social fund (moral hazard) that was a predecessor to today’s social insurance policy.

• how the pirate code minimised or eliminated the impact of a negative externality on a crew member or the whole crew.

• how Peter’s book dedication, in the form of a marriage proposal, worked out.

• when did piracy at sea begin and when did the romanticised period of piracy, as we know it, occur.

• how are the pirates of the early 18th Century, such as Captain Blackbeard, so different to the pirates of today, such as the Somali pirates.

• how sailors found solace and refuge as buccaneers and pirates after wars, such as the War of the Spanish Succession.

• why unemployed sailors became buccaneers and pirates.

• the risk-reward ratio of becoming a pirate.

• whether pirates actually buried their treasure.

• how an enterprising society was established at the land bases of pirates.

• what pirates spent their spoils and treasures on.

• the signalling effect of the Jolly Roger flag and why pirates used it as they approached a merchant ship.

• how an ‘honor among thieves’ and collusive agreements between pirate groups allowed them to avoid attacking each other.

• how coast guards, who were legally allowed to plunder merchant ships, often used the Jolly Roger flag as a signal to deceive their subjects into thinking they were pirates for the purpose of avoiding a bloody battle.

• why coast guards used the Jolly Roger flag to cash in on the reputation of pirates.

• if self-governance is effective and more successful that government.

• whether the free-rider problem would exist in a self-governed economy regarding public goods.

Links:

• Gary Becker’s Centre on Chicago Price Theory
• Becker Friedman Institute for Research in Economics: The University of Chicago
• Episode 072: F. A. Hayek
• Episode 073: Robin Hanson
• Episode 055: David Skarbek
• Journal of Political Economy

Papers:

• The Invisible Hook: The Law and Economics of Pirate Tolerance by Peter T. Leeson
• Human Sacrifice by Peter T. Leeson in Review of Behavioral Economics. 

Books:

• The Invisible Hook by Peter Leeson
• Anarchy Unbound by Peter Leeson
• Living Economics by Peter Boettke
• Economic Approach to Human Behaviour by Gary Becker
• Human Action: A Treatise on Economics by Ludwig von Mises

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