Heavy Lifting - thoughts and web finds by an economist
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Thursday, April 15, 2004
Markets and Trust
Markets depend upon trust. As Adam Smith stated in Wealth of Nations: "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 self-interest." Markets engender trust that the other guy is going to do what is in his best interest. This working paper investigates the perceptions of public corruption as they relate to levels of trust. The results indicate that where individuals do not trust strangers, percpetions of public corruption are greater. But it is exactly in market situations in which you must trust the stranger, otherwise transaction costs increase to an extent that overall economic activity grinds to a standstill. Not surprisingly, where people don't trust strangers "free" markets have not developed.
Reading the paper brought to mind a long-standing thought experiment on my part concerning the various -isms. Specifically, how to define a particular -ism in one sentence or so. I am sure others have done this but I have purposefully tried to avoid seeking them out. However, perhaps it is also useful to add the type of trust required for the various isms, and the likelihood that such trust is well placed.
These are just fledgling ideas. Which systems run counter to the natural human behavior? Is libertarianism impossible because those attracted to government will ALWAYS be so attracted for their own self-interest rather than for your best interest? Damn that Scottsman.
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