THAT, my good friends, is what living in the “good society” is all about. This pertains as much in business, family, church and government as anywhere else. The problem in economics is that it is waaaayyyy toooooo eaassssyyyyy to try to model this out with a couple of reaction functions and a contract curve. Sure, I love the market process because of the numerous feedback loops embedded in it – this is what keeps me from playing golf on this fine morning and instead showing up to the office to work on my classes. But there needs to be more than just a contractual commitment, more then just the formal feedback of profit and loss, to tighten up the threads which hold our great human institution together.
I don’t exactly have a name for what it is I am talking about, and I do not mean to suggest that capitalism makes it harder for these sorts of virtues to emerge, I just wanted to remind folks that we cannot simply write a really nifty constitution, we cannot really just hope to get good people to represent us, we cannot really try to make a broad set of rules to govern ourselves, for this whole thing to work. We need more. Thanks to David Rose for reminding me of this.
For a name, how about Bourgeois Virtues? If McCloskey is right and there is some reinforcement between participation in markets and the virtues that support market institutions, then even blithely modeling with reaction functions and contract curves will yield sound predictions.
Lord Moulton called this “Obedience to the Unenforceable” in a talk titled “Law and Manners”. It is such a great speech that has stuck with me ever since I read it:
http://www2.econ.iastate.edu/classes/econ362/hallam/NewspaperArticles/LawAndManners.pdf
This may surprise many of those who read The Unbroken Window, but for years I made deals for tens of thousands of dollars worth of Holstein heifers on a handshake. Funds changed hands as the heifers were going onto the truck; in the case of my Amish cattle clients, it was cash, although around 1980 it became OK for the Amish to have checking accounts.
After we sold our cows in 1983, however, we rented a farm to a man who turned out to be a “player,” someone who stuck us with thousands of dollars of unpaid rent, frozen pipes and 15 ten-wheeler truckloads of manure.
Certainly something had changed in the farming business. Our lawyer told us we should have had our tenant sign a judgment note confessing in advance for any and all unpaid bills. The problem was that our tenant had most of his major possessions in joint name with his father, and because our home prepared agreement had not been signed by his father, we were out of luck. Needless to say, we never made a deal on a handshake again.
It is a correct observation that trust is a key element in any capitalist transaction, and if one can’t rely to some degree on trust and honor (and on the Ten Commandments to some degree) it opens the door to all kinds of uncertainty. Trust also has an important place in the regulation of capitalism. “What? Do you want unbridled capitalism?” someone might ask. The answer is “No, I want the law to protect me against theft and fraud.” Except for that, I don’t want any surprises from the government to come my way, like having my GMAC bonds declared worth 30 cents on the dollar while the shareholders don’t get wiped out or while the assets of the company are conveyed to the United Auto Workers. I also don’t want the government commanding me that I sign a contract for health insurance. I don’t want my land taken by regulation or by a misuse of eminent domain. Mainly, I don’t want unbridled government.
The Amish, by the way, are not a bunch of radical screwballs that make for a sideshow tourist attraction in Lancaster County. They read newspapers and know what’s going on in the outside world, but they just choose to stay apart from it. They don’t own cars, but their feed man will take them anywhere they want to go. No car payments: is that smart or what? Smart, and honest as the day is long.
Great question, and a new angle on the subject, sin. Surely there is something that gives us a sense of duty to do the next right thing, even though my hand is burning with hypocrisy with every letter I type.
It does help to live under a good system, like we in the US often underappreciate, that is free, with all of the risk that someone might do wrong, voluntarily or involuntary, every day, frequently sometimes. I am not talking about murder.
Wintercow asks what causes us to do the next right thing, even when no one is watching. Much depends on how we were raised, often with religious principles, but always with a sense of transcendent values, that there are values that make us civilized. Well, more civilized than early men fighting for control of the water hole. Maybe such behavior is both instinctive and taught. But it is the glue that holds a good system together.
But, as Wintercow has told us in many installments, we are doomed.