stacked stones in front of a lake

Building Wealth with Mutual Trust

August 12, 2020

Think about how important it is to our modern worlds of economics, investments, and business that most people trust most other people. Trust is often overlooked and not appreciated as the crucial ingredient it is for our prosperity.

Powerful examples are easy to spot – if nobody trusted that loans would be paid back, no person or bank would ever lend to a stranger. One might lend to a family member, or to someone of your own religion or community, or to people whose character they have observed for many years, but that would drastically slow down business creation and the speed at which money flows around the world, which means we would be much poorer for it.

Another example of the necessity of trust is our modern system of electronic and paper money. If nobody believed in the future purchasing power of currencies, we would be back to the ancient practices of trading livestock, seashells, or food to get what we need from other people. It is not an exaggeration to say that the ability of millions of people scattered around the globe to lend billions of dollars every single day to complete strangers is nothing short of a miracle created by humans.

Let’s examine briefly what it is like to live in a society where people don’t trust others outside of their personal circle. If you can’t trust that you won’t be robbed when you go to the market to buy eggs, perhaps that forces you (and everyone else) to keep your own hens. If you can’t trust that the doctors in a hospital will take care of your loved one without a massive bribe, maybe you are forced to avoid the hospital while hoping the sick person recovers on their own, or maybe you have to hand over all of your life savings to get the life-saving medical care you desperately want.

When people in a country can’t trust others, or their government, all kinds of unnecessary costs need to be paid and opportunities get passed up. Instead of investing in the project that gives you the highest economic return, you are likely to make decisions that solidify your family’s riches or power.

Looking at the sunnier side of the same coin (to mix metaphors), when we are lucky enough to live in societies that have high levels of mutual trust, it means most of us are happy to play by the rules. People will have the confidence to take risks, back new businesses, invest their precious time in building enterprises that will improve our standard of living, all because they feel that they have a fair chance at being rewarded. They don’t have to worry that the city police chief, or a highly placed politician, can swoop in and take those rewards for themselves.

We even accept giving over to our government substantial amounts of our income as taxes because we trust that they will spend the money in a way that will make our society better off (even if we feel there is some room for improvement in how that is done). But if we didn’t trust that most people were following the rules, that violators faced penalties, and that the money wasn’t being stolen by the people in charge, then tax collections would certainly decline, and we would have worse hospitals, schools, police and infrastructure as a result.

So, as we have seen, trust is an essential ingredient for us all to enjoy a First World quality of life, and the more we trust each other the higher our standard of living. Come to think of it, there might have been a lot of wisdom behind putting the phrase “IN GOD WE TRUST” on the back of the US 1 dollar bill.