Reflections and diffractions: Schlicht replies to his critics

American Journal of Economics and Sociology, The, April, 2002 by Ekkehart Schlicht

EKKEHART SCHLICHT *

Trust in Market Societies

I

On Mark Blaug

Trust is, in Mark Blaug's words, an integral feature of every economic transaction, and markets and customary behavior meld together in every society, whether primitive or advanced. This is what I wanted to express, and I wanted to explore somewhat deeper into the nature of custom, the force of custom and the way in which it melds with economic forces and supports economic processes. Yet I have not discussed trust, and I had no response at the symposium when Mark Blaug raised this question.

The issue relates, of course, not to trust between persons who know each other well, but rather to the anonymous trust that makes me rely on the cleanliness of bakers in general. While trade in a bazaar may require personal communication and bargaining for establishing personal trust, modern anonymous market economies with price-taking markets work much more efficiently, but they rely on anonymous trust.

So we are left with the problem of envisaging how anonymous trust can develop in market societies. How is it possible that entitlements and obligations are shaped in such a way that people can rely on their behavioral impact in their impersonal everyday dealings? I have not answered this fundamental question, which is entailed by Mark Blaug's query, but I have thought about it in the meanwhile and I will try to supply an answer along the lines suggested in my book.

The traditional point of view about the matter is that market competition fosters selfishness. It rewards those who exploit others. In this way, the market undermines the fundament of trust that has been identified, since Aristotle, as the moral basis of society. (1) As social evolution encourages and fosters attitudes that are successful and abates less successful ways of behavior, the market will amplify selfishness and erode trust.

This self-destruction of the market system is certainly not what we observe. It seems that markets produce trust, contrary to these earlier arguments. One answer to this puzzle may be given in terms of the workings of custom: people are not shopping all the time. They do not interact predominantly in the market, but rather in firms and families without market mediation. Firm organization and family organization are more successful than the market for certain types of coordination and for organizing the division of labor of certain tasks. This is the reason why we find firms and families, as Goase has pointed out. I have urged that one important element of firm coordination is custom. Shaping appropriate attitudes of the employees and creating a strong corporate culture renders firm coordination successful. While Marx, and later Coase, portrayed command as the dominant element of firm organization, advanced systems of production do not and cannot rely so much on command. Because of the difficulties of controll ing idiosyncratic work of specialized workers, firms have to rely on voluntary cooperation and intrinsic motivation. They have to create an atmosphere of trust and mutualism in order to produce effectively. They have to rely on the force of custom for purposes of internal organization and will create corporate cultures that encourage cooperation in various ways. The diffuse motivation for cooperation will lead to cooperative attitudes. (2) Because self-perception and the formation of attitudes are shaped by a drive for clarity and coherence, these attitudes will generalize to all kinds of social interaction, thereby replenishing the basis of trust that supports market exchange. In this way, the market produces trust: it shapes firms that have to rely on custom and trust for purposes of internal organization, and this trust generalizes and supports market exchange. (A similar conjecture can be made, and has been made, with regard to families.)

With regard to Marx, it is only fair to acknowledge that he emphasized the incomplete nature of the employment contract. As Mark Blaug observes, this incompleteness is a cornerstone of Marx's theory of exploitation. Let me add, in the same vein, that Marx saw clearly that the division of labor can be organized in different ways. In Chapter 12, Volume 1 of Capital he distinguishes the social division of labor and the division of labor in manufacture and insists that "the former division reacts upon and develops and multiplies the latter." The social division of labor comprises the market and the family--both exchange and custom; the division of labor in manufacture is organized by command--all elements are there. Just like Blaug, Marx complains about Smith and "the subordinate part which he assigns to machinery" that "gave occasion in the early days of modern mechanical industry to the polemic of Lauderdale, and, at a later period, to that of Ure." Maybe I should have better started with Marx, rather than Smit h, when writing about the division of labor!

I would object, however, that Marx minimized, and even neglected, the importance of custom in the market and the firm. He relegated it to the family and to "the conflicts between different tribes, and the subjugation of one tribe by another." This neglect of custom may be due to the same reasons that Mark Blaug has given for Mill's discounting of custom--that it will erode in the wake of modernization. My purpose was to question this view and to re-establish custom.