Trust is Essential for Freedom

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The discipline of constant dealings is the fancy economist lingo for the age old adage: treat others how you want to be treated. What it means is that if one party damages another, they will not interact in the future. If a guy cheats on his girlfriend, for example, they will likely breakup. This has massive effects in economics.

David Friedman uses a part of the book “The Moon is a Harsh Mistress” by Robert Heinlein to teach this lesson. In the book, a voluntary and free society is imagined, and this society begins to interact with earth. The book holds a mirror up to our society’s structure and is intended to make you reconsider everything you take for granted. The example Friedman uses is when discussing contracts, the earthlings say that they need the government to enforce contracts. This shocks the alien visitors, who react by asking why you would contract with someone you did not trust.

This example is a fantastic way to show the principle involved. Free markets tend to reward mutually beneficial behavior. Actors who act in a universally preferable way tend to be able to contract with more people and advance their own success further. The man who cheats (breaks an agreement or does something to break trust) on his girlfriend (the other contracting party) will tend to have less and less options in the future.

The market will weed out those who act poorly and reward those who act well. Trust is so essential that no society can be workable that lacks it. Be trustworthy in all your endeavors, and you are well on your way to being a great capitalist.