Most people don’t realise that Adam Smith, the godfather of capitalist economics, was in fact a moral philosopher first and foremost. It was in The Wealth of Nations that Smith made a critical observation:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest” – Adam Smith
Smith was making the point that self-interest can be and is a source of great moral goodness. The self-interest of the baker to make a profit leads to a general increase of happiness: well-fed people are generally happier than the starving.
But Smith inadvertently touched on something deeper: contrary to the blatherskite of grumpy socialists, markets do not corrode social trust and weaken community bonds. In fact, the evidence shows, capitalist market societies depend on trust, extended beyond family and friends to strangers. Economic freedom fosters co-operation, honesty and reciprocity.
The key point is that trade requires trusting attitudes and trustworthy behaviors to function properly, making a commercial society equivalent to a trust-based society. Think of the famous ‘world’s oldest complaint letter’: a clay tablet found in the Akkadian city of Ur. When Nanni, the tablet’s writer, complains to copper merchant Ea-Nasir that instead of “fine quality copper ingots… You put ingots which were not good before my messenger.”
Worse, the merchant treated the buyer’s servant with contempt. “Is there anyone among the merchants who trade with Telmun who has treated me in this way? You alone treat my messenger with contempt!”
It’s obvious from this exchange not only that Nanni trusted Ea-Nasir to deal with him fairly, but that the abuse of that trust was highly unusual. “You alone”, he complains. The implication is that the vast majority of merchants could be trusted.
American economist Ryan Murphy of the Bridwell Institute calls this “bridging social capital”. Distinct from “bonding social capital”, the bonds of affection between our close social circle (i.e., family and friends), bridging capital builds social bridges with those outside the close social circle. Societies characterised by intense, almost overriding, bonding social capital, are characterised by hostility and suspicion of outsiders, as well as nepotism and corruption.
Research from the Mercatus Center’s Virgil Henry Storr and Ginny Choi demonstrates the bridge-building capacities of market economies. They found that people in both market and nonmarket societies trust close family and neighbors. However, as social distance increases – from family and friends to neighbors or strangers – trust decreases. And yet, this decline in trust is slower in market societies. Compared with those in nonmarket societies, people in market societies are more likely to (at least somewhat) trust friends, colleagues, and even strangers. As Choi and Storr concluded, “People around the world seem to have equally strong core networks, but those living in market societies seem to have stronger periphery networks.”
Other surveys have shown that, even controlling for other factors, societies with higher levels of economic freedom have higher generalised trust. Pro-market reforms engender an increase in trust.
Grumpy socialists will likely complain here that survey respondents are just telling researchers what they want to here. Laboratory behavioural experiments give the lie to that claim.
Contrary to expectations, people tend to be more trusting and trustworthy in experiments than survey answers, and laboratory experiments can give us a better sense of how economic institutions shape the trust-based behaviors of individuals.
The results of various laboratory experiments by Storr and Choi are telling. In studies published between 2018 and 2022, the two researchers demonstrate that in markets where cheating is possible, participants learn to reward trustworthy partners with greater trust and reciprocity (measured through token transfers). Those with positive market interactions received significantly more tokens than cheaters. What’s more, even strangers received more tokens than cheaters. In experiments where cheating was prevented or its effect neutralized, positive relationships were treated similarly to relationships between strangers. Storr and Choi stressed that participants knew nothing about each other and could not communicate beyond offers. That means the relationships were purely commercial, with no distortions stemming from race, sex, religion, or the like. In short, when corruption and dishonesty are absent from the marketplace, trust and equal treatment emerge. When dishonesty is a factor (as it is in the real world), trustworthiness is incentivized, and dishonesty is stigmatized. Positive market transactions breed trust and trustworthiness.
Although leftists regularly denounce capitalists as evil, cheating and unreliable, experiments with the world’s uber-leftists, Berkeley College students, shows that the reverse is true: it’s the socialists you can’t trust.
Another pair of economists selected internet business professionals from two cutthroat industries: domain trading and online adult entertainment. Multiple laboratory games between these internet professionals and Berkeley students yielded surprising results: The business professionals were more trustworthy, trusting, generous, and honest. As the study’s authors put it, “Internet business people were, on the whole, ‘nicer’ than students.”
Anyone who’s ever seen students in action, protesting The Current Thing, could have told them that. I’d trust Gordon Gekko before I trusted a lefty college student.
