To explain the origin of exchange, you must explain the origin of trust

23 September 2010, 1408 EDT

I’ve just started reading Matt Ridley’s The Rational Optimist.  So far, it is an excellent, through-provoking read.  A key to Ridley’s argument is that the innovation of exchange–the trading between two parties of separate items or services that both parties value–that led to mankind’s dominance of the planet and the explosion of knowledge and technology.

Ridley explains how exchange–or barter–is qualitatively different from reciprocity (an activity that can be found in other species):

at some point, after millions of years of indulging in reciprocal back-scratching of gradually increasing intensity, one species, and one alone, stumbled upon an entirely different trick. Adam gave Oz an object in exchange for a different object. This is not the same as Adam scratching Oz’s back now and Oz scratching Adam’s back later, or Adam giving Oz some spare food now and Oz giving Adam some spare food tomorrow. The extraordinary promise of this event was that Adam potentially now had access to objects he did not know how to make or find; and so did Oz. And the more they did it, the more valuable it became. For whatever reason, no other animal species ever stumbled upon this trick – at least between unrelated individuals.

As I read this it occurred to me that Ridley is likely right, but also that exchange is just as dangerous an activity as it is a transformative one.  Why?  Because to base one’s existence on exchange means making oneself vulnerable to and dependent on others for what one needs.  As Ridley notes, earlier humans were self-sufficient.  But moving from self-sufficiency to exchange means trusting others that they will provide what you need and will honor the exchange.

In the present, we take this somewhat for granted.  I assume that my local grocer will have the fruits, vegetables, etc, that I need to feed myself and my family.  I don’t worry about the possibility that they either won’t have my food or that they will refuse to provide it to me in exchange for the money that I have.  But imagine back about 100,000 years ago.  At some point, someone had to take a very big leap and become dependent on someone else for what they required for survival.

As a political scientist, my initial reaction is that trust both emerged from repeated interactions with barter partners and was then institutionalized through the emergence of government.  Too often government is derided as an impediment to economic growth, but we often forget that without it one is hard pressed to explain sustained progress.  A capitalist economic system cannot function without a robust legal system that includes rules for exchange and a system that monitors and enforces violators.  How else can a society become so utterly dependent on anonymous, non-local actors to provide that which is crucial for survival?  That isn’t to say that government can’t also play a negative role–often it has.  But ignoring the positive, necessary role that it plays is quite dangerous in my view.  It also requires us to ignore the lessons of history.

I am only up to Chapter 2, and it appears that Ridley will take up this question of how trust emerged in Chapter 3.  I’ll be curious to see how he deals with this question and what answer he proposes.

[Cross-posted at Signal/Noise]