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Features - November 26, 2008
What Would Blackbeard Do? Why Piracy Pays
Q&A with economist Peter Leeson
By John Matson
In the so-called golden age of piracy, spanning the late 17th and early 18th centuries, pirate captains such as Blackbeard and Bartholomew Roberts roamed the seas in search of plunder.
Their fearsome exploits became the stuff of lore, inspiring countless films, books, amusement-park rides and, ahem, more films. But those same exploits also fed a reputation that facilitated their activities—a sort of brand name that was widely known and was instantly recognizable by its logo, the Jolly Roger (a black flag with a skull and crossbones).
In a new paper, "Pirational Choice," and in the forthcoming book The Invisible Hook: The Hidden Economics of Pirates, economist Peter Leeson of George Mason University in Fairfax, Va., examines the inner workings of pirate organizations.
He makes the case that pirates, far from being the unrestrained barbarians of legend, were actually shrewd businessmen who carefully calculated their actions to increase their haul while minimizing risk and expenditure. Leeson spoke to us recently about his research and how modern-day pirates stack up against their golden-age counterparts. An edited transcript follows.
Your central thesis seems to be that pirates are not the roving ruthless barbarians that they've been portrayed as but instead are very conscious and rational money-maximizers.
That's right. Piracy is an employment, and I think that we should think about sailors' decisions to enter piracy as opposed to, say, the legitimate merchant service as an employment decision just like anybody else's. The same features that are driving pirates' behavior drive our behavior when we think about employment options. And they are rational again in the traditional economic sense, which is that they respond to incentives and they consistently act to achieve their goals.
You discuss strategies that pirates employ to brand themselves and to develop the image of barbarians not to be trifled with. And you highlight this by citing the example of the Jolly Roger.
At the time that pirates of the early 18th century were operating in the Caribbean, there were other potential attackers that a merchant crew might confront. The reason that's important is because those other potential attackers were less fearsome than pirates, because they were constrained by the law. Pirates could do whatever they wanted to you if you resisted them, but these guys were, at least in principle, somewhat limited.
So if pirates wanted to take the prey with as little resistance as possible, which they did because they wanted to keep costs down, what they needed to do was to somehow indicate that "I'm a pirate and I will kill you if you resist me," as opposed to one of these legitimate attackers. And in response to that need, which is again a profit-driven purpose, pirates developed the Jolly Roger.
Can you please clarify the term "separating equilibrium" that pops up in your chapter on the Jolly Roger?
A separating equilibrium is to be contrasted with what's called a pooling equilibrium. It's part of signaling theory, the idea that people want to engage in various behaviors to communicate something about themselves that isn't directly observable. What makes for a successful signal is if it's more costly for some types to send than it is for others.
Think about it this way: if the Jolly Roger was so effective at facilitating merchant ship surrender, then why didn't the legitimate belligerents, the other guys attacking merchant ships, also want to hoist the Jolly Roger? Because it could have facilitated easier surrender for them, too. My point is that they did want to.
A pooling equilibrium was threatened but was largely prevented by what is called the single-crossing property in economics—the fact that it's more costly for the one type than for the other. And it was more costly for a privateer ship, which was legitimate, because if they raised the Jolly Roger, all of a sudden their status moves from legitimate ... to criminal—they could be caught and hanged. So that's an added cost for them. But pirates, since they were already outlaws, they had already incurred that cost.
In terms of establishing the pirate brand, you discuss cruelty as a means of achieving that notoriety.
That's exactly right. Again, if we think of piracy as a business, as I think we should, their reputation was just as important as it is for any other business. So in order to institutionalize the brand name that they wanted to cultivate, what they needed to do was first work diligently in creating it. The way that they did that was through ruthlessly adhering to this idea of torturing people if they didn't comply with them once they had boarded their ship.
We normally think about pirates as sort of blood-lusting, that they want to slash somebody to pieces. [It's probably more likely that] a pirate, just like a normal person, would probably rather not have killed someone, but pirates knew that if that person resisted them and they didn't do something about it, their reputation and thus their brand name would be impaired. So you can imagine a pirate rather reluctantly engaging in this behavior as a way of preserving that reputation.
In fact, you point out that to be bloodthirsty would undercut the desired result, because it would signal to potential targets that they might as well resist.
The reason that cruelty was effective is because it constituted a cost of a behavior that pirates wanted to deter. If you're a merchant crew and you know that pirates, no matter what you do, are going to try and slaughter you once they board you, well then of course there's no cost to you resisting them.
You might as well try; you'll probably lose, but you're no worse off than if you had just surrendered to them peacefully in the first place. So it was critical for pirates that they only applied heinous tortures when, in fact, they were using it to penalize behavior.
And this is part of this idea of what I call the "invisible hook." It's analogous, in some ways, to Adam Smith's invisible hand [a hypothesized force by which a free-market economy naturally benefits the greater good] in the sense that, of course, pirate prey are worse off as a result of pirates attacking them, but a profit-motivated pirate crew is likely to behave better toward the people they're attacking than one that in fact was truly sadistic and didn't care about money at all. And this is a case where we can see that.
Is that how you're able to separate cause from correlation? What's to say that these pirates weren't just, say, bands of bloodthirsty marauders that lucked into this strategy?
One of the things we can do is look at testable implications of the rational-choice theory. If in fact pirates were truly madmen, we would not expect them to only display that madness in particular cases. Especially, it would be a great coincidence if it happened to be those cases in which it stood to make them money. And that's pretty much precisely what we observe.
Notice the sort of piratical paradox, if you will, that we confront. You've got these depraved and feral sea bandits living somehow by a strict pirate's code, holding judicial sessions, and regulating alcohol use and gambling. The two things just don't seem to match up. First of all, that undermines the claim that pirates were simply crazy, because when it was in their interest, they seemed to be able to behave perfectly rationally.
And the rational-choice framework can really allow us to resolve that piratical paradox, in that you can take one basic core assumption about human behavior and explain two things that seemingly are at odds with each other, as opposed to positing ad hoc pirate motives as we go from practice to practice.
One example that you point to in demonstrating the efficiency of pirate behavior is that, according to at least one pirate historian, Blackbeard didn't kill a single man.
That's a perfect illustration of what we're talking about here and another actual prediction that comes out of the rational-choice theory to a certain extent. The actual instances that we have of pirate brutality—and there are a number of them—an economist would characterize as out-of-equilibrium play, not the norm. Those cases are recorded precisely because something really nasty happened.
And the fact that Blackbeard didn't have to actually kill anybody is an indication of what we would call equilibrium play. The reputation that he'd created was so effective that he didn't have to actually ever carry through on the threat that lay behind that image.
One thing that I thought was interesting is the fact that some of these pirate ships had institutionalized a form of worker's compensation.
They did, and I talk about that in-depth in a different paper I wrote. But that's exactly what they had. And one of the things that's marvelous about the system is, first of all, its earliness. That was not a common thing in the 17th- and 18th-century world.
Merchant sailors, for example, didn't have access to something similar through the state until after pirates had already adopted this. But in any event it was a highly detailed scheme, so if you lost your right arm it would be worth x number of pieces of eight, and if you lost your left leg it would be worth y number of pieces of eight in compensation. So it was quite a developed system.
In this paper you focus primarily on the "golden age" of piracy. But what do you make of piracy today, especially with the Somali pirates in the news of late?
Modern-day pirates … are similar to old-school pirates in the sense that they are plundering on the sea and that they are engaged in plunder on the sea where government is weak.
Other than that, when it comes to their institutional organization, for example, overwhelmingly they seem to be just not that interesting. Now—and as far as I know this is the only case we have of this—when the French government took a pirate crew earlier this year, they did find an actual pirate's manual that laid out rules about how they would treat prisoners. It points again to the profit-seeking idea—it's not because they're nice people, it's because the prisoners are valuable as hostages.
But it's still nowhere near as elaborate or as interesting. The constitutions that 18th-century pirates had ... created a true system of social governance on the pirate ship. Seventeenth- and 18th-century pirates were pioneers, in a certain way, of constitutional democracy. They had checks and balances aboard their ship, they had an early form of quasi-judicial review, and they were democratic, which was virtually unheard of in the Western world at that time.
The reason modern pirates don't have that, I think, is because 18th-century pirates spent lots and lots of time together at sea. It could be months on end. And they lived and worked and operated apart from legitimate society for long periods of time, which meant that the pirate ship was a kind of floating society. And that society, like any other one, required rules in order for it to be functional.
If you look at modern pirates, they tend to spend very little time together on their ships. Modern pirate expeditions tend to be in-and-out operations. And since they aren't really together in the same way that 18th-century pirate crews were, they don't really constitute floating societies.
Therefore they don't face the same kinds of social problems, at least to the same extent, that the 18th-century pirates did, and so that's why they don't have elaborate rules. No society, no rules.
They still seem to be turning a pretty nice profit.
Oh, absolutely. They seem to be doing well. I don't think that they're inferior predators. It's just that they're not as interesting predators.