I'm looking for examples of "real world" encryption, and I came across this one: Half Moon Bay Memories & El Granada Observer » When Rumrunners Ruled Part 2
The author notes how the rumrunners in the 1920s had a "flashlight code." Different patterns of flashes told smuggling boats offshore whether or not it was safe to land. (Updated!)
Steve Bellovin dropped me a note reminding me that Kahn had talked about crypto being used by rumrunners. Kahn's story is based on the east coast of the US and it's more high tech: it involves encrypted radio. The Coast Guard fought back with direction finders and another secret weapon: Elizabeth Friedman, cryptanalyst wife of William Friedman.
For those not familiar with "Kahn," we're referring to The Codebreakers
, by David Kahn, first published in the 1960s. It was the first thorough, published history of crypto.