Economics + institutions + pirates

I’m writing an essay on institutional analysis and whether it helps us understand problems of economic non-development. Specifically, I’m responding to the implicit claim that institutional analysis is an improvement from the “neoclassical paradigm” that often neglects, or takes for granted, the role of institutions.

It’s a little heady, I know. What I want to point out here is that simply reverting to an institutional perspective to explain why one country is more highly-developed than another can be a cop out. If, for example, Zambia remains poor because it lacks robust property rights, we haven’t really explained anything. We’ve begged the question. Zambia is poor because it lacks robust property rights, which are, as far as we know, essential to economic progress. But why do they lack robust property rights? What about Zambia makes property rights less robust than in, say, the United States? That’s the real question, and I don’t think it’s economic. It’s a moral issue. It has to do with the religious convictions underlying the ways people in Zambia think about material goods.

Economics can only take us so far. There’s a philosophy called economic imperialism, which essentially states that economics can explain everything. Not that money is behind all motives, but that the postulates of economics are just as useful to explain why, say, pirates engage in piracy as it is to explain why fiat currency tends to depreciate over time.

I just finished The Invisible Hook: The Hidden Economics of Pirates by Peter Leeson, an economics professor at George Mason University (where I study). It alleges to show why pirate behavior was profit-motivated, and not as irrational as is often portrayed in popular media. The book was ok, but Leeson never did address the question of why pirates would engage in this behavior in the first place—why they would want to become pirates at all. That seems decidedly anti-profit. Pirates didn’t live as long, on average, as people with legal professions. They risked the noose if caught. Of course, we can (like Leeson) apply the profit motive in retrospect to everything everyone does. But isn’t that possible to do with any action, especially in light of the fact that we don’t really know what motivates any given person?

I don’t want to disrespect Leeson. He’s a smart guy. He might be my professor one day. But isn’t applying the profit-motive in retrospect one of the easiest things in the world to do? Could pirates have done anything that was decidedly anti-profit? Could they have had any motives that did not have to do with improving their own physical and material well-being?

We can’t know other people’s incentives. We can guess, and guess pretty well. But it seems entirely plausible to me that pirates, or anyone, could have incentives we cannot relate to, and that are opposed to those conducive to enhancing overall economic well-being.

Comments appreciated. Rebukes encouraged. These are just some random thoughts.

Posted by Nick Freiling

Founder/Director of PeopleFish. I write on technology, market research and economics. Bylines at Startup Grind, FEE, the American Enterprise Institute and the Mises Institute.

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