What is a Crisis of Trust?

We hear a lot these days about the current financial crisis being one of trust. Banks don't trust each other any more, lenders don't trust borrowers, investors don't trust who or what they are investing in. That is all true, but it does not get to the heart of the matter.

What is trust? It is confidence that commitments will be honored, that agreements will be kept. Which gives us an indication of the true nature of the capitalist economy.

Classical economics has many virtues, but it has also saddled capitalism with the concept of homo economicus, the egotistical, self-serving economic actor as the core of the capitalist system. This is a gross misconception. Capitalism is not built upon self-serving egotists but upon people willing to make commitments to each other, both short-term and long-term, regarding their economic resources. That is what credit and debt, borrowing and lending, are all about. The commitments are mutual. When these commitments are reneged on on the scale they have been in the current crisis, the system fails.

Therefore it is a much better characterization of capitalism to label it the "commitment economy" rather than the "greed economy," which is what the Left paints it as, thanks to classical economics.

Capitalism is commitments, not greed. The trust one hears so much about is trust in keeping commitments. Capitalism, friends, is the commitment economy.