Why Should the Modern Economy Turn to the "Pirate Code"?

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12 Mar 2024

Questions of economic democracy and socio-economic transformations in society become most relevant during crisis periods. And our 2008 was exactly that – the year of the global financial crisis and the Great Recession. During that time, the global market struggled with accumulated problems, necessitating the development of alternative, sometimes radical solutions. It was precisely then that Satoshi Nakamoto introduced the world to his ideas about cryptocurrencies and blockchain.

A year later, American economics professor and representative of the Austrian School of Economics, Peter Leeson, released a book titled "The Invisible Hook: The Hidden Economics of Pirates," drawing parallels between contemporary democratic economics and the economic structure of pirates. This morally sensitive topic attracted public attention and created a certain resonance.

Leeson's "Invisible Hook" vs. Smith's "Invisible Hand"

In the mid-18th century, Scottish economist Adam Smith introduced a term that is actively used today by both proponents of economic liberalism and its opponents. This term is the "invisible hand of the market."

According to Smith's theory, the "invisible hand of the market" denotes the power or force through which socially beneficial economic outcomes are achieved. In other words, behind all economic processes in society lies a clear structure ensured by this "invisible hand."

Leeson, speaking about the "invisible hook," on the contrary, discusses the "anarchy of the market," clearly reflected in the pirate way of life. He argues that traditional competitive economics prioritizes the public good, while pirate economics only cares about individual gain or the gain of a small collective. Nevertheless, the "invisible hook" has quite tangible points of intersection with the modern economic regime. For example:

Selfishness. The policy of individual selfishness assumes that each market participant will be primarily occupied with satisfying their own needs and the needs of their close ones, and only then with public goods.
Rationalism. Individual rationalism implies that market participants will seek to achieve their economic goals in the most rational way possible from the available options.
Stimulus. Principles of stimulus and response explain the relationship between profit and production costs. When costs rise, profits decrease (and vice versa).

All these parameters could be seen in pirate economics, and now they are relevant in the modern world.

Pirate Democracy

Despite all the cruelty and amorality of the pirate way of life, it was based on quite logical and understandable principles.

Principle 1. Selective power system

The captain of a pirate ship, also an ideological leader, was chosen by a general vote. Moreover, he could be removed from the main position in the same way – if he ceased to satisfy the crew.

Principle 2. Wage payment

If on royal ships, ordinary sailors were more like unpaid labor, on pirate ships they could earn much more money for performing the same work.

Principle 3. Limited command power

Again, compared to the traditional fleet, the pirate system of governance differed as if by greater democracy. On a royal ship, a sailor could be punished for any action at the captain's whim, who had practically unlimited power. On a pirate ship, the captain had only two privileges: a separate cabin and increased pay. Daily life, food, and schedule were shared with the ordinary sailors.

Principle 4. Division of power

On a pirate ship, several people besides the captain were endowed with authority, forming the so-called "management apparatus." One of these people was the quartermaster - the chief intermediary between the leader and the people. He was responsible for distributing the loot among the members of the ship, be it gold or provisions.

Interestingly, the emergence of "pirate democracy" was provoked not by external factors but solely by an internal desire for stability. It was disadvantageous for the captain of the ship to abuse power since at any moment he could lose it, as well as his own life. For the crew members, for the same reasons, it was disadvantageous to act alone or deceive their comrades.

Parallels with Cryptoeconomics

Cryptoeconomics is considered a new decentralized economic system controlled not by the state but by users. Analyzing the main arguments of Leeson's work on the "invisible hook," one can see that both there and in cryptoeconomics, similar principles are laid down. These include:

a system of direct and transparent voting, typical for the sphere of decentralized finance;
support for individual entrepreneurs and evaluation of the contribution of each community participant;
individual benefit and convenience are valued much higher than collective satisfaction.

Conclusion

As mentioned earlier, Leeson's reflections on the "invisible hook" were warmly received by a wide audience and elicited a significant number of positive responses. However, critics noted with caution that the academician overly romanticizes the pirate way of life and sometimes forgets that it is an illegal, criminal, and dangerous activity for society. Moreover, the complex social processes in Leeson's work are presented in an overly simplified manner, which may create an incorrect historical image in the minds of readers.

Overall, the book "The Invisible Hook: The Hidden Economics of Pirates" can be confidently recommended for reading in modern realities. Perhaps it can help to some extent in resolving some problems of the new decentralized economy.

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