Open your wallet and, if you still carry cash, take out a dollar bill. Across the top you should see written, “In God We Trust.”
The slogan is more than a bit inaccurate. Using money requires no trust in any god. That is, unless you think of Ben Bernanke as a deity. Use of money, especially fiat money (money not backed by gold or any other valuable commodity), requires trust in just one institution – the bank that issues it.
In the United States, every time you accept dollars as payment for your labor or the goods you produce, you are implicitly putting your faith in the Federal Reserve, trusting that they won’t do anything foolish to cause excessive depreciation of the value of those dollars.
Niall Ferguson, professor of history at Harvard, points this out beautifully in his book, “The Ascent of Money.” In the book, he also points out that the root of the word credit is the Latin word Credo for “I believe.” That is, “I believe you’ll pay me back.”
Our regular use of money and credit is, indeed, compelling proof that markets can’t function solely on the basis of self-interest and greed, as the typical capitalist narratives suggests. Markets require trust and trustworthiness. They necessitate some degree of empathy and a healthy portion of integrity.
In fact, the roots of money as we know it may date back to the credit extended between trading partners, who soon realized that their IOUs could hold as much value as any gold or silver coin, depending on the trustworthiness of the debtor. So if I had to request an advance on some good from you, and a week later you realized you needed that good for another trade, you could turn my IOU into cash by simply selling it to someone else. The IOUs were, for all intents and purposes, money.
In this way, the ethos of trustworthiness may not just be necessary for markets to function. It may also have been an integral factor in the creation of money and credit, two innovations that are at the root of nearly all economic progress that the world has experienced over the last several centuries.
Working in reverse, corruption and lack of trustworthiness threatens to put capitalist development in jeopardy. Crises of confidence in markets can cause recessions and depressions. If, for example, we had all been able to simply move on after the collapse of Bear Stearns and Lehman Brothers, we may not be staring at double-digit unemployment. It was the crisis of confidence in financial markets that led to the issues of liquidity and the freeze in the credit markets that were in large part responsible for the economic recession that followed the financial decline.
So when you look at your dollar bills and you see “In God We Trust,” think about the significance of that phrase. And laugh to yourself as you consider all of the people in this world who believe that greed – and not trust – is the fuel of free markets.