The Gist: Ninjas don’t get company stock, health insurance, or even a fraction of the pirate benefit package.
The first of a three part review of The Invisible Hook by Peter Leeson and
Under the Black Flag by David Cordingly.
Imagine you are in a boring yet stressful job where you are overworked for poor pay, no benefits, bad promotion prospects, no stock, and little vacation while a tyrannical boss subjects you to his greedy whims and degrading discrimination.
Now consider an offer from a group of entrepreneurs where you will immediately receive stock options, have a decent chance of earning 40x what you could in a year (and a smaller chance of 1000x), receive health insurance, and help select your boss (or become the boss!). The only small catch is that it’s highly illegal and if you are caught you could be executed.
That’s the choice that faced sailors in the 17th century: remain in the merchant marine or become a pirate.
Figure 1. Honestly a tough choice.
The Invisible Hook explores this and other questions about the economics of pirates. The title is amusingly inspired by the originator of free market theory, Adam Smith: “We can achieve very few of our self-interested goals, from securing our next meal to acquiring our next pair of shoes, in isolation. Just think about how many skills you’d need to master and how much time you’d require if you had to produce your own milk or fashion your own coat, let alone manufacture your own car. Because of this, Smith observed, in seeking to satisfy our own interests, we’re led, ‘as if by an invisible hand,’ to serve others’ interests too. Serving others’ interests gets them to cooperate with us, serving our own.” Crucially, Smith argued that no government is necessary in order to coordinate economic activities. The Invisible Hook claims that a similar force guided infamous maritime criminals into organizing themselves in particularly useful ways – all the more impressive because they operated completely outside (and indeed against) government authority. Under the Black Flag constitutes additional tales of piracy if you’re so inclined.
The typical sailor led a hard life. If you were lucky, you intentionally took the job but you could also be “pressed,” a euphemism for being kidnapped. On a typical voyage, you leave home for months, perhaps years. Mercantilist competitors and unfriendly natives await with violence. Tropical diseases ravage you – one white man in three died in his first four months in Africa. Half the crew might die of scurvy, a terrible disease derived from lack of Vitamin C. You’ve got plenty of opportunity for workplace injury and contemporary medicine insists on taking lots of your blood while doctors consider washing their hands inconvenient. Sounds worse than receiving the Black Spot!
Figure 2. Who knew OJ could save your life? If the carton don’t fit…
Ship management is unsympathetic and there is no HR to whom to complain. Absentee investors finance your expedition and are very concerned about your “negligence in caring for the ship, carelessness that damaged cargo, liberality with provisions, embezzlement of freight or advances required to finance the vessel’s voyage, and outright theft of the vessel itself.” So they’ve empowered a captain, perhaps with a small share to align incentives, to load and offload as many goods as possible as fast as possible as cheaply as possible. According to the law, the captain can dock your already small wages and physically beat you. Outside the law, he might attempt sexual harassment. But even under the most benevolent of captains, you’ll have endless work: the average 200 ton merchantman carried fewer than 18 men. Once your trek is over, you don’t even have a guarantee that you’ll get to continue your miserable work.
But perhaps you choose a different route. Pirates have boarded your ship, taken any valuables, and have an exploding offer to any able-bodied seaman to go on the account and join their motley crew. What exactly are they offering?
As a pirate, you work a lot less! The average pirate crew has 80 members but could be a lot more – Blackbeard had 300! Pirates were looking to numerically overwhelm any of their targets and that has the wonderful benefit for you that the day-to-day seafaring work is spread around where four or even sixteen men are doing the work that one might do on a merchantman.
Figure 3. Rest your weary sea leg by taking a caulk every once in a while. Just don’t fall over and feed the fishes!
You graduate from wage labor to ownership! No longer are you a poor sailor stuck on the bottom rung no matter your talents, no matter the profitability of the voyage. As a pirate, you get a share in the expedition and instantly become part owner of the ship. “As historian Patrick Pringle described it, in this sense a pirate ship was like a “sea-going stock company.”
Figure 4. Brings new meaning to “corporate raider”
You have a shot at vast treasure! Whereas as a merchant sailor you might earn $5,000 a year, your share in pirate plunder could yield over $330,000 – and $5,000,000 is not unheard of. Because you can’t sail into simply any harbor, you are still going to have to raid for provisions and supplies, but booty is out there: In just four short years between 1596 and 1600, Spain imported precious materials from the Americas equivalent to about $840 million.
Bear in mind: no prey, no pay. Pirates structured their profit sharing to limit crew discord but also to vest in each member an incentive to plunder. While the captain and skilled crew members (like surgeons) might get a small multiple, the distributions were fairly flat to ensure that all pirates had their heart in the taking of the prizes until all were satisfied.
Figure 5. Sadly, burying treasure is more common among fictional pirates than real ones. Here X marks the spot of the finest bar in Tortuga, where most treasure wound up anyhow.
You might want to hire a financial manager. Much like professional athletes and lottery winners, pirates were not exactly great at managing their sudden acquisitions of vast wealth. After one voyage led by the French pirate Francis L’Ollonais dispersed $6,500,000, the crew spent it all in just three weeks, on gambling, rum, and wenches.
Figure 6. You are going to need the right asset allocation. Burying your treasure doesn’t put your money to work for you! I primarily recommend a Royal Exchange index fund so you can focus on what you’re good at – you’re a pirate, not a stock-picker! Bank of England bonds should be reliable or you can invest in Dutch tulips if you have a high risk tolerance. My big recommendation is real estate: a fabulous island on the Hudson River just went for $24!
You get health insurance! Although you may be really bad at spending money, pirates wanted to make sure you exerted maximum effort, so they try to de-risk violence for you a little bit. Specified in advance upon joining the crew, the awards ranged from $2,500 for loss of a finger to $15,000 for loss of a right arm.
Figure 7. The offerings of Black Cannon Black Ship, the preferred pirate insurer.
You may work for an equal opportunity employer! An African on a legitimate ship invariably was a slave but some pirates were happy to consider highly motivated additional manpower. Pirate ships certainly had a larger portion of black crew members than their legitimate counterparts – up to 30%! A century before emancipation, pirates were prepared to not only recognize talent but to equally empower blacks in crew decisions. Of course, they were less enthusiastic about accepting women, who were considered a distraction to the crew, though famously two women, Anne Bonny and Mary Read, originally dressed as men, served on the crew of Calico Jack Rackham. When they were caught, they managed to avoid punishment by revealing that they were both pregnant.
No wonder pirates had such an easy time recruiting! In my next email, learn how pirates were constitutional republicans. Savvy?
Figure 8. The Invisible Hook. Score 7/10. Fun premise worth reading, some arguments more interesting than others.
Figure 9. Under the Black Flag. Score 7/10. Some great stories about pirates, but a bit scattered.
Thanks for reading! If you enjoyed this review, please sign up for my email in the box below and forward it to a friend. Think – do you know anyone who loves history or economics? How about someone who hates his job and dreams of a better life? Or is there perhaps a person somewhere out there that isn’t yet fascinated by pirates?
I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!