Markets and Trust

In his important paper on Endogenous Preferences, Samuel Bowles writes:

. . . Markets thus affect not only the demand for, but also the supply of cultural traits. Among these are reputations for trustworthiness, generosity, and vengefulness.

If markets require less trustworthiness, for instance, then you may get less of it.

. . . Thus where markets approximate the ideal complete-contracting assumptions of the standard model, the adverse consequences of lack of trustworthiness or generosity may be attenuated; but at the same time markets may militate against the evolution of these traits. Thus markets may undermine the reproduction of traits necessary for efficient market transactions in the absence of complete contracting

Notice anything peculiar about the reasoning here? Bowles follows the standard model and stipulates complete contracts, draws out a consequence of that model, and then says . . . what? That if that model both did and didn’t obtain we’d get a bad consequence, and then blames the bad consequence on the market. This is weird. Either we have complete contracts or we don’t. If we don’t, and we don’t, then we need trust. If markets enable contracts that enable gains that are impossible without markets, and trust is necessary to complete these contracts, then there may be higher payoffs to trust in market interactions than in non-market interactions, and we’d expect norms of trust to be reinforced by the presence of markets.

That members of market cultures are more trusting, by the way, seems to be a result of a set of cross-cultural experiments conducted by Bowles and others after the publication of his endogenous preferences paper.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center