Sunday, April 26, 2009

Peter Leeson

From a Q & A at the New York Times/Freakonomics blog with Peter Leeson, author of The Invisible Hook: The Hidden Economics of Pirates:
Question: The Invisible Hook is more than just a clever title. How is it different from Adam Smith’s invisible hand?

Answer: In Adam Smith, the idea is that each individual pursuing his own self-interest is led, as if by an invisible hand, to promote the interest of society. The idea of the invisible hook is that pirates, though they’re criminals, are still driven by their self-interest. So they were driven to build systems of government and social structures that allowed them to better pursue their criminal ends. They’re connected, but the big difference is that, for Adam Smith, self-interest results in cooperation that generates wealth and makes other people better off. For pirates, self-interest results in cooperation that destroys wealth by allowing pirates to plunder more effectively.

Question: In the book, you write that pirates had set up their own early versions of constitutional democracy, complete with separation of powers, decades before the American Revolution. Was that only possible because they were outlaws, operating entirely outside the control of any government?

Answer: That’s right. The pirates of the 18th century set up quite a thoroughgoing system of democracy. The reason that the criminality is driving these structures is because they can’t rely on the state to provide those structures for them. So pirates, more than anyone else, needed to figure out some system of law and order to make it possible for them to remain together long enough to be successful at stealing.
Read the complete Q & A.

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

The Page 99 Test: The Invisible Hook.

--Marshal Zeringue