Five Minutes on Trust and Economics

Summary

Sir Partha Dasgupta critiques the misconception that economics solely focuses on greed, arguing that economists actually address how societies facilitate trust and transactions among individuals. He emphasizes the importance of understanding the mechanisms behind trust in various contexts, from households to international trade, and the role of institutions in mediating and maintaining trust. Dasgupta also distinguishes economists' approach from philosophers' moralistic stance, highlighting their focus on explaining and improving societal trust mechanisms rather than prescribing moral behavior.

Takeaways

• 📚 Economics is often misunderstood as solely focusing on money and greed, but it's more about how society enables transactions among inherently self-interested individuals.
• 🤔 Economists aim to explain the mechanisms that facilitate trust and transactions in society, despite the presence of self-interest.
• 🏡 Transactions within households, firms, and across countries differ in nature, yet all aim to solve the problem of trust.
• 🌐 There is a commonality in how societies and groups worldwide address the challenge of fostering trust among individuals.
• 📜 Historical philosophers like David Hume have contributed significantly to the discourse on contracts and conventions, which are central to economic transactions.
• 🤝 The concept of trust is fundamental to economic activity, as it enables the exchange of goods and services without prior agreements.
• 👮‍♂️ Institutions like law, judiciary, and police are essential for maintaining trust and order in economic transactions.
• 🔍 Economists are not moralists; they seek to understand and explain the societal mechanisms that create and sustain trust, rather than prescribing moral behavior.
• 🔧 Economists also analyze potential failures or limitations in trust-building mechanisms and explore possible solutions.
• 🛒 The complex interplay of institutions and trust is exemplified by everyday transactions, such as using a credit card at a supermarket.

Q & A

What is the common misconception about economics according to Sir Partha Dasgupta?

The common misconception is that economics is only concerned with money and greed, and that economists believe greed is good.

How does Sir Partha Dasgupta view the role of economists in shaping public perception?

He believes that economists are their own worst enemies because they present their subject in a way that can lead to such misinterpretations.

What does Sir Partha Dasgupta suggest is the fundamental issue societies must address for transactions to occur?

The fundamental issue is the establishment of trust between individuals to facilitate transactions.

Why does Sir Partha Dasgupta argue that laws, judges, police, and courts are necessary?

They are necessary because they help to create a framework within which people can trust each other and engage in transactions.

How does Sir Partha Dasgupta differentiate transactions within a household from those across firms?

He suggests that transactions within a household are very different from those across firms due to the nature of trust and familiarity within a household.

What is the 'communality' Sir Partha Dasgupta refers to in the context of different types of transactions?

The 'communality' refers to the common aim across different societies and cultures to solve the problem of establishing trust for transactions to occur.

Why is the study of customs and traditions across cultures important according to Sir Partha Dasgupta?

It is important because they are manifestations of the same aim to establish trust and facilitate transactions, even though the methods may differ.

What does Sir Partha Dasgupta think about the role of philosophers in understanding economic behavior?

He believes philosophers are interested in the nature of contracts and moral behavior, but economists focus on explaining how societies create and maintain trust.

How does Sir Partha Dasgupta describe the role of economists in addressing failures in trust mechanisms?

Economists are engaged in identifying failures and limitations in trust mechanisms and exploring what can be done to address them.

What is the practical example Sir Partha Dasgupta gives to illustrate the importance of trust in economic transactions?

He uses the example of using a credit card at a supermarket, where trust is mediated by the credit card system, allowing transactions to occur without prior acquaintance.

What does Sir Partha Dasgupta imply about the role of institutions in economic transactions?

He implies that institutions play a crucial role in observing, monitoring, and disciplining economic actors, which helps to maintain trust and facilitate transactions.

Outlines

00:00

💼 Economics and Trust

Sir Partha Dasgupta discusses the misconception that economics is solely about money and greed. He clarifies that economists are not proponents of greed but rather study how societies facilitate transactions among individuals who may not be inherently honest. Dasgupta emphasizes the importance of trust in economic transactions and how it differs across various contexts such as households, firms, and international exchanges. He introduces the idea that customs and traditions across cultures are manifestations of societies' attempts to solve the problem of trust. Dasgupta also distinguishes the role of economists from philosophers, stating that while philosophers focus on moral injunctions, economists seek to explain and improve the mechanisms that create and maintain trust within societies.

Keywords

💡Economics

Economics is a social science that studies the production, distribution, and consumption of goods and services. In the script, Sir Partha Dasgupta clarifies that economics is often misunderstood as being solely about money and greed, but it is actually more concerned with how societies facilitate transactions among individuals who may not be entirely honest or altruistic.

💡Greed

Greed refers to an excessive or insatiable desire for wealth or possessions. The script discusses the misconception that economists promote greed. Instead, Dasgupta argues that economists recognize the reality of human behavior and seek to understand how societies can function despite this potential for greed.

💡Trust

Trust is the reliance on the integrity, strength, ability, surety, or behavior of a person or entity. The video emphasizes that trust is fundamental for economic transactions. Dasgupta explains that different mechanisms, such as laws and social norms, are in place to foster trust where people might not inherently be trustworthy.

💡Transactions

Transactions refer to the act of buying or selling goods or services. The script highlights that transactions vary in nature, from those within households to those across firms or countries. Understanding these transactions is crucial for economists as they are the building blocks of economic activity.

💡Institutions

Institutions are established laws, customs, or organizations that govern a society. Dasgupta mentions institutions like law, judges, police, and courts as part of the 'mesh' that facilitates trust and economic transactions in society.

💡Moral Behaviour

Moral behaviour refers to actions that are consistent with principles of right and wrong. The script clarifies that economics is not just about moral behavior but also about understanding the mechanisms that allow societies to function despite potential moral failings.

💡Contracts

Contracts are legally binding agreements between parties. The script references David Hume's writings on 'contracts' or conventions, which are social constructs that help establish trust and facilitate transactions.

💡Customs and Traditions

Customs and traditions are long-established practices or beliefs. Dasgupta suggests that despite appearing different across cultures, customs and traditions are manifestations of societies' attempts to solve the problem of trust.

💡Monitoring

Monitoring is the act of overseeing or observing something or someone. In the context of the script, monitoring is part of the institutional framework that ensures trust and adherence to agreements in economic transactions.

💡Disciplining

Disciplining refers to the process of enforcing rules or standards. The script mentions disciplining as a mechanism within institutions that helps maintain trust by holding individuals accountable for their actions.

💡Mechanisms

Mechanisms are processes or systems that produce a particular effect. Dasgupta discusses mechanisms in place in society, such as laws and social norms, that are designed to facilitate trust and enable economic transactions to occur.

Highlights

Economists are often misunderstood as promoting greed, but they actually focus on how society can facilitate transactions among inherently not-totally-honest individuals.

Economic mechanisms like law, judges, police, and courts are in place to facilitate transactions and build trust where inherent honesty may be lacking.

Transactions differ significantly in nature depending on whether they occur within households, firms, or across countries.

The common thread across various cultures and societies is the need to solve the problem of trust in order to transact.

Dasgupta aims to show students that customs and traditions across cultures are manifestations of the same aim to build trust.

Philosophers like David Hume have contributed significantly to the understanding of contracts and conventions, which are crucial for trust.

Economists are not moralists; they seek to explain how societies create and maintain trust rather than prescribing moral behavior.

Economists also analyze the failures and limitations of trust mechanisms and propose solutions.

The practical example of buying groceries with a credit card illustrates the complex web of trust and institutions at play in a simple transaction.

Economic analysis is not abstract; it is deeply connected to everyday life and practical applications.

The presence of trust in transactions is often overlooked but is a critical component of economic activity.

Economists examine how trust is facilitated through observation, monitoring, and disciplining within institutions.

The functioning of economic systems varies significantly across different regions, highlighting the importance of context in trust-building.

The role of economists is to understand and potentially improve the mechanisms that allow for trust and transaction in society.

Economic systems are not static; they evolve and economists play a role in identifying areas for improvement.

The importance of trust in economic transactions is a fundamental concept that is often underappreciated.

Economists' work on trust mechanisms is crucial for understanding and potentially improving economic systems.

Transcripts

>> Sir Partha Dasgupta: There is a convention or view of economics that we are only concerned

with money and we are concerned with greed, or greedy people.

That's really, it's very unfortunate that that should be the prevailing view, or largely

held view.

But I think we are our worse enemy, we economists, in the sense that we present our subject in

a way which lends itself to that kind of misinterpretation.

No economists says greed is good.

Or no sensible economist would say that.

They would say that the flip side of it is if people are not inherently, totally honest

and not-other regarding at every moment in time in their lives what can society come

up with to nevertheless allow people to transact with one another.

Of course if we are all holy, or worldly so to speak and always bent on doing the right

thing, doing what we once said we would do than it wouldn't be able to explain a

great deal of the mechanisms that are in place in society.

The fact that you have the law, the judges, the police, the courts, so forth.

People exchange goods and services amongst each other and in order for that to happen

people must have some sense of trust.

Transactions inside the household is very different from the transactions across firms.

Transactions within a firm are different in character from transactions across countries,

people across countries.

But is there communality to all this?

People are trying to solve the crucial problem of being able to trust each other to be able

to transact.

So my idea was to show students that there is actually a coherent, overarching way of

viewing the problem, so that what looks as very, very different - customs, traditions

across cultures, are in fact manifestations of the same aim and the way societies or groups

solve this problem of being able to trust one another are different.

So yes and philosophers are very interested in it, in fact I just discovered the other

day from Simon Blackburn who is also a visiting professor here that David Hume had lots to

say about this.

A great deal of his writings were about the nature of "contracts" conventions he called

them.

It is a real deep ill conception that economics is not about moral behaviour, very much so,

but on the whole - the difference between philosophers and economists at least on this

front is that we are not moralists.

If you read philosophers you feel that they are throwing injunctions at you, what is the

right thing to do, and we on the whole try to find explanations for the ways societies

have tackled the problem of trust, in the sense of creating trust, maintaining trust.

And then of course the next step that we, economists, are engaged in, we take, is to

ask whether there is a failure, limitations in these mechanisms and if so what can be

done about it.

We are talking now about life, we are not talking about some abstract notion of life.

If you are interested in asking, ask let us say an engineer - how is it that the stuff

that I buy in the super market actually is there?

I didn't place an order for it.

How is it that I can just walk in and use a credit card to buy my shopping and walk

out?

He doesn't know me, but there is an enormous amount of trust, because the credit card is

doing, is mediating that transaction and so forth.

So all this is a huge mesh of institutions in play.

One is observing the other, one is monitoring the other, one is disciplining the other and

so forth and so on.

So somehow one way or the other, roughly speaking, it works here and it doesn't work in many

other places.