Commerce is a cure for the most destructive prejudices; for it is almost a general rule that wherever manners are gentle there is commerce; and wherever there is commerce, manners are gentle. —Montesquieu — The Spirit of the Laws (1749)
Without trust, the wheels of commerce would screech to a halt. – Unknown (at least to me)
Free market capitalism originated in Western Europe in the 1500s, igniting a prosperity that has changed the world. But why did free markets arise there first, and why then?
Those questions have occupied thinkers for hundreds of years, but Harvard professor Joseph Henrich offers one of the most striking and original answers in his 2020 book “The WEIRDest People in the World” (WEIRD is an acronym for Western, Educated, Industrialized, Rich and Democratic). Here is the story. For most of human history, everyone lived in “kinship-based” societies. The tribal/kinship arrangements took various forms around the world, but in all cases familial connection was the glue that united the group. People tended to define themselves by, and give their primary loyalty to, their “kinship” connections. In such societies, goods and services were traded, but generally only within the group. Those outside the group were treated warily as potential or actual enemies. “Intensive kinship . . . breeds a sharper distinction between in-groups and out-groups,” explains Henrich, “along with a general distrust of strangers.”
Henrich describes the change in Western Europe that occurred from about 500 AD (after the fall of the Roman empire) to around 1500 (the start of the Enlightenment). Over those thousand years, kinship-based societies began to break down in Western Europe. Henrich attributes this breakdown to the Christian Church’s insistence on monogamous marriage, and its prohibition on marriage to cousins, nieces, nephews, in-laws. This had the unintended effect of loosening the familial/tribal connections that had always bound groups together. As those kinship-based ties grew weaker, people began thinking of themselves less in terms of their place in the kinship group, and more in terms of their individual characteristics. They began leaving the groups and moving to the growing cities, where strangers lived and worked together.
Making a living in these cities involved doing business with strangers, and strangers can’t rely on the bonds of kinship; they have to trust each other. Which meant that the virtues upon which trust is built — honesty, reliability and fairness toward others – became more highly valued. Up in the Highlands you may be a member of the McGregor clan, but down in Edinburgh they want to know if you keep your promises. Trade among strangers demanded trust between strangers.
Henrich calls it “impersonal prosociality” – behaving decently even towards people with whom one lacks a personal connection. “In a world lacking intensive kin-based institutions,” Henrich explains, “where people depend on well-functioning commercial markets for nearly everything, individuals succeed in part by cultivating a reputation for impartial fairness, honesty, and cooperation with acquaintances, strangers and anonymous others because it’s these qualities that will help them attract the most customers as well as the best business partners, employees, students, and clients. Such market norms specify how to behave when you don’t have a relationship with someone or know each other’s family, friends, social status, or caste.”
This development of trust among strangers was new. But it made true commerce possible. By the 1500s in Western Europe, people were producing goods and services and trading them even with “outsiders.” We now call it a free market.
I’ve discussed elsewhere how free markets create incentives for people to behave with honesty and fairness and trustworthiness. “Whenever commerce is introduced into any country,” noted Adam Smith, “probity [honesty and decency] and punctuality always accompany it.” Henrich’s book makes the surprising chicken-or-egg point that it was the growth of trust and honesty and fair-dealing among strangers that gave birth to the free market.