In this context, it has more to do with the courage (actually, the lack of it) of Hands and O'Brien. Long John Silver is striking a bargain with Hawkins after the other pirates have gone to the Forecastle for debate... Silver says "..."Aye, by gum, I do!" he answered. "Ship gone, neck gone --that's the size of it. Once I looked into that bay, Jim Hawkins, and seen no schooner--well, I'm tough, but I gave out. As for that lot and their council, mark me, they're outright fools and cowards. I'll save your life--if so be as I can--from them. But, see here, Jim--tit for tat--you save Long John from swinging."
Then he recounts the loss of the schooner (Hispaniola) that he believes Jim has hidden away. Silver believes it was lost because Hands, O'Brien and others didn't defend it.
Curiously, in the next chapter we see Long John dressing down the others after receiving a black spot and asking what they had made the death signifying black spot of "... "Well, you've about fixed it now, among you," continued Silver. "You'll all swing now, I reckon. What soft- headed lubber had a Bible?"
In this context, he does infer simple mindedness or lunacy...