The Distrust of Strangers

Economic Principals is a strange column, more literary than analytical, which focuses on influential figures and thinkers in Economics through history. Although Warsh, the editor, become delusional on the subject of Howard Dean, I can't think of a better read early Sunday morning.

His latest column, not yet up on the website, discusses "The Company of Strangers: A Natural History of Economic Life," by Paul Seabright, which explores the potential vulnerability of the cooperation on which economic life depends. In his review, Warsh writes

But he goes a smidgen deeper than this. He asks what is it that permits humans to surmount their hunter-gatherer instincts in order to sustain the kinds of intricate webs of trust that are required to, say, exchange a credit card number for a sack-full of groceries?

Human beings ten thousand years ago had inherited a psychology that made them intensely suspicious of strangers and capable of savage violence towards them under some circumstances, but able to benefit spectacularly from institutional arrangements that made it reasonable to treat strangers as honorary friends.

There follow several really interesting chapters on various mechanisms, both internal and external, that have arisen to facilitate such cooperation: the taste for reciprocity, the institution of money, banking and its various disorders, systems of professional authority.

I've been thinking of why people find economics so fundamentally repugnant, and I think the fact that it goes against millennium of natural selection that re-enforced building, monitoring, and maintaining social relationships, is a large part of that. We humans are hard-wired to prefer interacting with those we know and trust, those we consider family and friends, and the soul-less transactional nature of the market makes that cozy circle compete with anonymous firms, tellers, recorded voices, etc. For a multitude of obvious reasons, the cozy close-knit circle loses when set against the benefits of scale economies, division of labor, and flexible capital, but we still shed a Neanderthal tear when we realize how many of our transactions are with strangers, not kin.