Reuters has posted an interesting review of a new book by Geoffrey Hosking called Trust: A History. The thesis? Apparently that trust "provides a substitute for prescience. The unchecked pursuit of self-interest can undermine trust."
This is surely one more globalist meme: Capitalism is a fragile endeavor and only regulations, rigorously enforced by vast government enterprises, can create and nurture trust. (My paraphrase.)
Here's a larger excerpt:
What is the glue which holds an economy together? Disciples of Adam Smith would argue that self-interest serves as the organising principle. The problem with this way of thinking is that it overlooks the fact that man is not an island unto himself. He is a social animal, who must have constant dealings with other people. Besides, according to John Maynard Keynes, it is impossible to pursue our self-interest rationally, because we don't have enough information to make probabilistic judgments about the future. Instead, we must rely on irrational animal spirits as a spur to action.
Hosking traces the genealogy of trust from its origins in family life, where it is imbibed in infancy, through organised religion – faith and trust being closely related concepts – to its secular role in modern economic life. Throughout this progression, our capacity to trust has become ever more extensive. "The advantage of being able to trust one another," wrote John Stuart Mill, "penetrates into every crevice and cranny of human life; the economic is perhaps the smallest part of it, yet even this is incalculable." Or in the blunt expression of one sociologist cited by Hosking, without trust we could not get out of bed in the morning.
Market economies depend on trust as well as self-interest. "Trust," writes Hosking, "is an indispensable component of courage." Without trust, there can be no entrepreneurs and no risk-takers. Trust lowers transaction costs, because less time is spent investigating those we might have dealings with. Trust also solves the supposed problem of cooperation raised by game theory, which starts with the premise of unmitigated self-interest. When a high level of trust prevails in a society, there is more cooperation and everyone ends up better off. Economists have found that trust is correlated with economic output, savings and investment, the efficiency of government and the willingness to pay taxes.
Money, writes Hosking, makes trust economically effective. It expands the realm of trust, whilst simultaneously depersonalising it. Money only has value because we trust it, and this trust is backstopped by our trust in the government of issue. Our faith in money represents a belief that society will collectively honour its obligations. When that belief is threatened, money loses its value. Hyperinflation beckons.
The key takeaway here is this: "Money only has value because we trust it, and this trust is backstopped by our trust in the government of issue."
But what if government itself, via regulatory democracy, is actually intent on misleading investors? In fact, the above sounds reasonable so long as one does not grasp the central issue being avoided – the ability of certain individuals to print what we call "monopoly fiat money."
This book and its review seem to provide us with an apologia for elite – technocratic – management to retain and expand "trust." There is apparently an endless supply of authors ready to attempt the trick of insisting on the necessity of technocracy at the expense of the Invisible Hand.
Am I reading too much into this sort of literary effort? How then do we explain this?
The ebb and flow of the business cycle can be seen as movements in the tide of trust. During the boom period, we become too trusting. Our business dealings become careless. The untrustworthy emerge to take advantage of these circumstances. Fraudulent activity, or what J K Galbraith called the "bezzle," increases. A speculative bubble is the consequence of excessive trusting.
Let me repeat this last sentence:
A speculative bubble is the consequence of excessive trusting.
For those of us who have sampled free-market economics and its eloquent explanation of the REAL reasons for the business cycle, the idea of "excessive trust" seems at least questionable. Perhaps "blind acceptance" is more fitting. After all, trust is earned. How does the state earn our trust? It doesn't. Human beings earn trust. And trust, earned or not, must never, as the author wrote, be "a substitute for prescience."
Economics is not divorced from life. Decisions, economic or otherwise, are made based on individuals' life conditions. And as Mises so eloquently explains, people will take human action, always, based on their own self-interest – the application of human reason to select the best means to satisfy an end. The worst of all possible outcomes results from "faith" in the state and money is only one part of this.
Most people trust institutions like government only because they've been programmed to trust. In reality, the sadness of this book's premise is that excessive trust does indeed exist, and is the reason we're where we are. People trust the state not by happenstance but by design. Public schools, media, government proclamations, etc. all continue to reinforce the meme that Big Brother cares and wants to protect you and your family – financially and otherwise.
A business cycle turns because central banks inject too much money into the system. When this money begins to circulate, then valuations begin to rise rapidly and price inflation speeds up. The end of a particular business cycle involves a monetary mania that inflates assets of all kinds.
What drives a modern business cycle is an excess of MONEY not an excess of trust. One can exist in a society with great gobs of trust, but that society will not experience a modern business cycle without a modern central bank and vast quantities of digital and paper currency.
Here's the way the review concludes:
Hosking claims there is a crisis of trust in the Western world. In the years before Lehman's bust, the distribution of generous incentives (read bonuses for bankers and stock options for corporate executives) encouraged reckless behaviour in the business world.
Furthermore, quantitative credit tools turned out to be faulty instruments for discerning where trust should be reposed. In the end, bank credit must always depend on the exercise of what Bagehot called "real sound sense." This was sorely lacking in the years leading up to the global financial crisis.
Hosking points out when trust in banks started to fail, governments were obliged to support them with public credit. In the subsequent years, government debt levels around the world have swollen to very high levels and major central banks have grossly expanded their balance sheets, printing money out of thin air.
No one knows how this extraordinary monetary experiment will end. For the moment, trust in government credit and money remains strong. Politicians and central bankers must tread carefully. If this trust is ever impaired, then we will witness a real crisis.
So according to the review, "Hosking claims there is a crisis of trust in the Western world." At the same time, the reviewer concludes exactly the opposite: "For the moment, trust in government credit and money remains strong."
Strange that this review would leave us with two opposed conclusions. Yet the solution is simple: In a capitalist society, "trust" is a bad concept on which to build a portfolio or life-action plan.
In my view, there is, indeed, a crisis of trust at this point – in the Western world, at least – and contrary to the author's suggestion, the growing awakening of people who have been blindly led to trust the state is a good thing. Knowledge made available by the Internet Reformation continues to degrade the impact of this powerful meme.
An actionable solution for many eyes-wide-open, free-market thinkers is to internationalize their assets using foreign trusts (a wise idea) and to secure a secondary residence.
As the Internet Reformation rolls onward, it is undoubtedly going to bring more and more people to the conclusion that we are and should be driven by MUTUAL self-interest and not become hexed into falsely putting our faith in others to “look after our needs.” They won’t.
Universal trust is a ridiculous concept and the only premise clear-thinking people should embrace is that of personal responsibility and conducting ongoing due diligence in all aspects of their lives.
Here at High Alert and The Daily Bell we work hard every day to try and provide people with insights to better understand the “great game” as we see it and the dominant social themes used to manipulate people into a state of unquestioning blindness through the acceptance of parasitically designed memes. And there is no greater meme that could possibly be more hazardous to a person’s health and well-being than the “trust in government” meme.
Investigate and verify. Read widely and observe the sweep of history. Invest in trends that are based on supply and demand and will survive the inevitable implosions of the business cycle. We've pointed out several such trends, of course – gold and silver, cannabis, organic foods, international real estate, etc. – and have introduced suggested solutions.
Trust is not the issue here but knowledge and wisdom. Trusting yourself to do your own due diligence and faith in your ability to protect yourself is the key.