What do pirates have to do with economics? Plenty, according to economist Peter Leeson in his book The Invisible Hook.

Leeson starts out looking at the most fundamental of economic texts from the 17th century Scottish moral philosopher Adam Smith who argued that self-interest was the "invisible hand" that guided markets. Only in the case of pirates, it was the "invisible hook".

Like any good business, the pirate trade sought to minimize costs and increase benefits. It did that in several ways.

First, pirate ships were democracies long before it became the standard in developed economies, long before the declaration of independence and suffrage in Britain. To keep captains in check, they were duly elected on the basis of one pirate, one vote. If they did anything that contravened pirate policy, like failing to mercilessly slaughter those who resisted them, they were turfed out or marooned. Because the pirates owned and operated the ship, which they had stolen, they put in a system of checks and balances which merchant sailors did not have.

Secondly, pirates had a system that ensured the booty was equally distributed. It was equal pay for equal prey to ensure they all had their hearts in continuing roving the seas. They also had a workers' compensation system for those who got injured plundering ships. This ensured pirates would continue to take risks and maximize profits.

Pirates also had strict constitutions on how to behave in a ship and ensuring the business was profitable. These articles of association prohibited drunken raucousness to allow other pirates to get sleep, bans on women, young boys and gambling to stop fights and tensions among crew members and strict rules prohibiting firing guns and smoking near areas that carried combustible goods.

Pirates were very much into branding. The aim was to strike terror into the hearts of the general public. Again, it was all about maximizing profits and keeping a lid on costs. Piratical costs included crew casualties and damage to the ship. As a result, they came up with the Jolly Roger, the logo that would signal to other ships that they would spare no quarter and slaughter all who resisted. Their targets would peacefully submit, reducing the potential costs. Pirate torture of victims also served the same purpose although as Leeson points out, they didn't make anyone walk the plank. That would be too quick and easy and would not serve the purpose of spreading terror.

Branding is critical to any successful business and the pirate brand was simple: slaughter for resistors, mercy for those who peacefully submit. The pirate branding strategy was also about going out of your way to let the world know you didn't care about dying and were insane.

Leeson says pirates today don't have the same sort of system. For a start, they spend very little time together at sea and they are often contracted out by land criminals. Still, he points out that the Somali pirates who captured the French ship Le Ponant in April 2008 divided their booty along similar lines of their 18th century predecessors and adopted a similar sort of social insurance scheme where, if a pirate died, his family would receive $15,000. They even had a code of conduct for treating prisoners.

Some traditions will never die.