Free Markets Increase Trust Among People

By Marian L. Tupy of Cato.

"Competition is an essential part of a capitalist economy. It drives businesses to innovate and to provide consumers with cheaper and better products. If businesses fail to innovate, they go under.The market place can be a brutal place – just think of the way in which Netflix disposed of Blockbuster. “Capitalism without failure is like religion without sin,” as the American economist Alan H. Meltzer once put it. “It doesn’t work.”

But capitalism is also one the most cooperative of human endeavors. Goods and services are traded among strangers and across vast distances, guided – to a great degree – by the price mechanism and by the reputation of the trading parties. Repeated transactions among trading parties encourage trustworthiness – a moral side product of capitalism that we do not spend enough time talking about, let alone celebrating.

Competition produces winners and losers. As Amazon expanded, for example, neighborhood bookstores shuttered across the United States. Some people thought that was a great tragedy, for bookstores provided a pleasant way to browse through publications and, sometimes, meet interesting people. Ultimately, however, the convenience of the internet, and superior choices and prices, proved to be more important to the average customer. Amazon and its clientele won, while Barnes & Noble lost.

The losers, who emerge from capitalist competition, appear to confirm a zero-sum bias in the human brain. It is for that reason that many people tend to focus on the closed local book store, rather than revel in the falling prices and increased choice made possible by Amazon. Where did that bias come from?

For most of our existence in the environment of evolutionary adaptiveness (EEA), which is to say tens of thousands of years we spent wandering the planet as hunters and gatherers, the success of one, usually related, group of people came at the expense of another group. When the resources in an area occupied by group A ran out, group A moved onto a territory occupied by group B. Conflict ensued.

Conflict still continues to define the interaction among animals. Humans, in contrast, evolved additional ways of interacting with one another. Permanent settlements were a key part of that process. Strangers who settled next to one another had to learn how to cooperate. In that process, they either acquired a reputation for trustworthiness, or they became social outcasts excluded from a larger economy.

As a result, humanity advanced. So much so that by the time of the Roman Republic, the Latin term civis became a root word for both the city and civilization. Over time, of course, the city-state gave way to the nation-state and the nation-state became a part of a global economy. As human cooperation expanded, so did our economic horizons.

That was, unambiguously, a moral as well as economic phenomenon. People, who might have otherwise hated each other, were brought together in the pursuit of profit. By the 18th century, the extent of human cooperation within the context of the market economy reached levels that even philosophers, such as Voltaire, felt obliged to opine about. As the French philosopher wrote:

“Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink, this one goes to be baptized in a great bath in the name of Father, Son and Holy Ghost, that one has his son’s foreskin cut and has some Hebrew words he doesn’t understand mumbled over the child, others go to their church and await the inspiration of God with their hats on, and everybody is happy.”

It is noteworthy that many of the scholars who continue to influence those who are sceptical of capitalism are not economists, but biologists and ecologists. They include the Stanford University professor Paul Ehrlich, the doomsayer partially responsible for the over-population panic that started in the 1960s, Garrett Hardin, the exponent of the “tragedy of the commons” theory, and Jared Diamond, the author of such bestsellers as “Guns, Germs, and Steel” and “Collapse.”

Their analyses of human affairs tend to be analogous to the interactions observable among animals. But humans, while remaining a part of the animal kingdom, have evolved mechanisms that allow for billions of cooperative interactions to take place each day. It is time for the economists to steal the biologists’ thunder by putting a renewed emphasis on the cooperative aspect of capitalism."