Market institutions can help us trust and cooperate with strangers, says Boaz, and the institutions of civil society, based on trust and reputation, often deliver social services better than governments can.

Transcript

David Boaz: I’ve talked about how socialism and excessive government create mistrust. You think everybody else is out to get you, out to steal from the common pot. I think freedom fosters trust among strangers. I tell the story in The Libertarian Mind about how my father was like the hero of a country song, a man who could borrow money at the bank simply on his name. We lived in a small town. The bankers knew my father. They trusted his character. So they would lend him money. I live in a big city. And I don’t know any bankers. So they don’t know me. They don’t trust me. And so I can’t borrow money simply on my name. However, I can borrow money all over the world at the drop of a hat. I can get money from an ATM in China in the middle of the night. Why is that? Not because I have a better reputation than my father but because networks of trust, computer networks have developed that allow people to check out who I am. They don’t know who I am, but they can check out who I am. Credit cards, credit bureaus, all those kinds of things are allowing us to trust strangers. So that means those people don’t look at me as somebody trying to steal from the common pot. They don’t look at me as somebody who might be a dangerous person. They look at me as a customer. And as soon as they just run this card through a computer, the message comes back from people who do know something about me – not really me personally, but my business affairs – this person can be trusted. Give him the keys to a car. Give him $300. That means the network of trust has been enlarged by the institutions of the market. Contracts, credit bureaus, credit requirements, that sort of thing, actually allow us to trust far more people than we could if we just lived in a village where we knew the character of each person.

And in the village I grew up in, some people couldn’t borrow money at the bank simply on their name. They would’ve been thrown out of the bank if they walked in because people thought of them as dead beats. They had not earned a reputation for good character. Now these credit systems are less likely to be influenced by personal bias because we certainly can imagine that in that village, some people really were dead beats and should not be lent money. But other people might have been black or from the other side of the tracks, and not trusted on that basis. Credit bureaus allow you to actually see what is this person’s record, does he pay his bills, does he have an income. Enlarging that network of trust requires individual rights and responsibility. It requires secure property rights. It requires freedom of contract so we can make these contracts and then make sure that they do get abided by free markets and certainly requires the rule of law.


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And one of the problems is there are countries in the world where there is not sufficient rule of law and these things would be much more difficult to do. Much more difficult to borrow money in a country that doesn’t have the rule of law that protects property rights and allows you to check the credit of people, that sort of thing.

Part of civil society is businesses, part of it is churches, part of it is our extended families, part of it is mutual aid and charity. And I think that sociologists and historians have paid too little attention to those kinds of institutions. Historians, sociologists, and political scientists like to look at government. And to some extent, they study business as well. I don’t think they’ve looked at the mutual aid and charitable society nearly as well.

I give a lot of examples in the libertarian mind of these kinds of associations, but there are many more beyond that. In Africa, there’s a traditional collective lending organization called the susu. People get together, they lend each other money. There is a small network of trust. Now this is where you trust people because you know them. It’s not the larger network that we can eventually get through market institutions and that we probably can’t get through purely nonprofit, charitable institutions. In Korea, they have a similar situation called the kye. I don’t know if I’m pronouncing any of these things right. In medieval society, they used to have something called ales. People get together and drink ale, and they chip in some money to help people who are down on their luck, who are sick, whatever. And in all of these cases, these are ways of relying on your peers, not relying either on the government or the rich – what used to be called Lady Bountiful, the lady of the manor would come and help you when you were sick. That’s a nice thing to do. And when you’re sick, that’s a good thing to have. But for a lot of people, it’s even nicer to be able to rely on yourself and your peers in a mutual aid society rather than dependent on your betters.

In the late 19th, early 20th century, there were a lot of what we call the friendly societies. People would get together in groups, and maybe they put a dollar in the pot every week. And the society builds up a resource. And when somebody is disabled or sick or your wife dies, you can draw on that pot. What does this mean? This means it’s coming from you and your friends, you and your fellow lodge members or whatever. So again, you’re not relying on the charity from the rich people’s church. You’re not relying on the government. You’re relying on yourself and your colleagues. It also means that you’re much less likely to shirk or cheat. If the charity is coming from somewhere else, somewhere on the other side of town, you don’t maybe have the same qualms about pretending to be more disabled than you are, staying sick longer than necessary. But when you realize that you’d be stealing from your friends if you were doing that and it’s your pot too, then you’ll be less likely to do that. Plus, part of the friendly societies was they were actually a society and they were friendly. And they would come by and see you when you were sick. They might be able to notice if you were no longer sick and could probably go back to work now. And then there’s no need for calling people out. You know that people are going to see what you’re like. You’re going to go back to work. Unemployment benefits that come from a distant government, you may take them as long as they’re available. Unemployment benefits that come from your lodge brothers, you’re probably going to start looking for a job as soon as you can.

Alcoholics Anonymous, another example of a mutual aid society, not for money, but genuinely for aid and comfort. Then there are a lot of groups with funny names like the Masons and the Elks and the Oddfellows. And they all grew out at least of this idea of mutual aid and friendly societies. And one of the reasons we don’t know about these groups now is I think two things sort of drove them out of business. One was commercial insurance companies. The commercial insurance companies came along, and they would say, “Save a dollar a week with us, and then you’re buying into a pool and is larger than your little local pool, so it’s more stable. And we’re more economically efficient. We’re going to take this money and we’re going to invest it. So there’s actually more money in the pot,” that sort of thing.

And the welfare state came along. The welfare state said, “You shouldn’t have to be relying on your neighbors or your fellow Polish immigrants in this town or whatever. You should rely on the whole community.” And that’s when you get the welfare state, which loses all of these personal connections and becomes a big bureaucracy. There are still people who have mutual aid society. Sometimes they’re ethnically based. Sometimes they’re still lodge-based.

The Mormons, The Church of Latter-day Saints, they have a very elaborate private-welfare program. They tithe into the Church, i.e. they give a 10th of their income. Goes for lots of purposes, but one of the things it goes for is supporting members of the community who are in distress. They also are encouraged to forgo a meal every month, or something like that, and put that food or money into the system. This is a little bit of a hybrid. This is a pretty large church, so it’s not like you’re just in your little local neighborhood Polish association. But you are bound together by your religion, and that gives you a sense of community.

Civil society is vast and complex. It’s so much a part of our lives in the modern world that we kind of don’t even notice it. And it is insufficiently studied by scholars, so that we are less aware of it than we should be. But it is a product of and a support of a free society. Civil society, all the connections between people that don’t rely on the force of government.

David Boaz

This post originally appeared in libertarianism.org
source: https://www.libertarianism.org/guides/lectures/market-process


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