Volume 1, Number 12
28 May 2001

Trade Engenders Trust

Dear Friends,

A strange thing happened in the New York Times of May 15. It reported on Kunshan, a town that Taiwan had built in China, as follows: "About 10 percent of Taiwan's $50 billion investment in the mainland has landed here." And, "Some experts say that if the trend continues, Taiwan's government will soon be unable to afford antagonizing China, and that the cost to China of attacking Taiwan may become prohibitive." What a way to end a war! The economic integration of Taiwan and China would make war extremely costly for either of them.

This reminded me of a contrary case with Japan in the 1920s. Japan was well on its way to democracy, with the civil government gradually assuming authority over the military. Historian Edwin Reischauer wrote of "a runaway liberal movement of the urban middle classes" that shifted power away from the military, whose budgets were curbed in 1922 and 1925. But the 1929 stock market crash, the Smoot-Hawley tariff of 1930 — the highest in American history — and an overvalued yen effectively cut Japan off from world trade. Japan sank into depression and unemployment, so that many youths — with nothing else to do — joined the army. In 1931 the army commanders, acting on their own without any communication with either the Parliament or the emperor in Tokyo, ordered the invasion of Manchuria and the war with China was on. Economic sanctions, and frozen assets abroad, further isolated Japan. So the military triumphed over democracy, and the new path led finally to Pearl Harbor. We will never know what might have happened had Japan been welcomed into the world of trading nations in the 1920s and 1930s, but it is just possible that its entry into World War II might have been avoided.

Trade engenders trust and inhibits war

In TQE #11, I promised a suggestion on how Quakers might react to the 39 countries listed as committing atrocities. Note that most of them were underdeveloped countries, Canada and the United States being the exceptions as they faced underdeveloped countries. Over a few centuries, the more developed countries — trading with each other — have fashioned common ways of making contracts, extending credit, settling accounts, and carrying on business transactions.

Normally, nations that become economically interdependent will not go to war. Exceptions occur when the political configurations overwhelm the economic, as with Germany and England, who traded vigorously before going to war in 1914. But why did France and England, enemies for centuries, become friends? Or France and Austria? Do you think the nations of the European Union will ever again go to war against each other? Do the United States and Canada consider war when they disagree? It is not the mere fact of interdependence through trading, but the growth of common assumptions about how to live together — an incidental result of trading — that makes societies want to live together in peace.

I wrote about this in my book, The Moral Economy (page 111), in the following quotation, slightly revised to become a Quaker message:

Northwestern Europe was the first world area in which trade began to transcend the power of rulers, and it was private trading — less than the agreements among rulers — that brought about the high degree of trust prevalent today. Building trust through multitudes of small private transactions by relatively ordinary people, rather than having trust mandated by an elite because it is a good thing, corresponds closely to the way we Quakers seek Truth. The procedure is collective and open to expressions of doubt as well as to confirmation with reality checks. It involves respect for other parties, whom we "hold in the Light." We do not seek Truth consulting higher temporal authority.

In the cattle market at Wedel, near Hamburg, in the Middle Ages, "a bargain was concluded when buyer and seller had noted the outcome on their slates ... Good faith was the rule in the transactions themselves. The bargain would be sealed with a drink in one of the thirty inns fringing the market place ... The rich lowland farmers ... left their purses in the inn, where the landlord looked after them in a wooden chest in his bedroom. Nobody doubted that its contents would be intact" (Glamann, 1977:267). "In the long history of human morality there is no landmark more significant than the appearance of the man who can be trusted to keep his promises ... [Although] conscience and promise-keeping emerged in human history ... long before capitalism ... it was not until the eighteenth century, in Western Europe, England, and North America, that societies first appeared whose economic systems depended on the expectations that most people, most of the time, were sufficiently conscience-ridden (and certain of retribution) that they could be trusted to keep their promises" (Haskell, 1985:2:551-3).

All this has led me to believe that trade among nations changed the trading world from basically suspicious to basically trusting (oh yes, lots of exceptions). The trusting world was one of cooperation to mutual advantage. This in turn led to opportunities for innovation and entrepreneurship, which came to mark the difference between those parts of the world (northwestern Europe, England, and Japan) that became rich and those parts (Asia except Japan, Africa, and Latin America) that did not.

But we need rules for trade. Northwestern Europe and Japan hammered out rules by compromise and agreement. These rules were agreed upon mostly by merchants and traders and only later were adopted by sovereigns. I tell about this in an earlier book, Centuries of Economic Endeavor (1994). Today we need an international organization in which representatives of governments can meet to work out those rules. This is what the World Trade Organization does. Why so many Quakers have opposed it (and an article in Friends Journal gave them voice) is beyond me.

The idea that the WTO is dominated by multinational corporations is myth. The WTO has made decisions that will cost MNCs plenty. For example, it ruled against the United States for its Foreign Trade Corporations Act, an act that gave unfair no-tax status to MNCs in Guam and other U.S. possessions. If put into effect, this ruling will cost MNCs billions of dollars.

So, I am pro-choice. I believe that if any person, A, wishes to do business with another person, B, and no third person, C, is hurt, no authority should prevent the transaction. My understanding of history shows me that trading and the ability of peoples to compose the rules of trade have meant the dividing line between decent living and continuing poverty. The Free Trade Agreement of the Americas should not be necessary. Trading should be a human right.

What about atrocities? Whoever commits atrocities must believe the victims are worthless miscreants who do not belong in civilization. (Studies show that Germans who committed atrocities felt that way about Jews). This kind of hatred diminishes as trade occurs. True, the nationally-induced hatred against Jews was Germany's primordial event of World War II. But think also of the many persons who risked their lives to save the Jews (Schindler for example). Did they have a divine spark that Nazis did not have? I believe they had come to think of Jews as "other selfs" who needed protection just as they themselves would have under the same circumstances.

Perhaps you thought, from TQE #11, that I would come up with some magic kind of protest that would, if successful, cut the atrocities in half within a few years. Sorry. We can no more end the atrocities abruptly than we can jump to the moon from only our own two feet. But if we want to start changing the hearts and minds of those who commit them, we should be promoting trade, economic integration, and understanding. Maybe the atrocities will come to an end in two centuries, as they did in England with the Enlightenment.

I do not ask you to accept my theory, and I do not expect you to read my books. If my theory makes sense, you may adopt it. If it doesn't, then adopt something that makes sense to you, and please tell me about it by email.

Sincerely your Friend,

Jack Powelson


Glamann, Kristof, "The Changing Patterns of Trade," in The Cambridge Economic History of Europe, ed. by Rich & Wilson.

Haskell, Thomas J., "Capitalism and the Origins of the Human Sensibility," American Historical Review, vol. 90, p. 2.

Readers' Comments

Please send comments on this or any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer! The email address is tqe-comment followed by @quaker.org. All published letters will be edited for spelling, grammar, clarity, and brevity. Please mention your home meeting, church, synagogue (or ...), and where you live.

I just came back from a conference put on by a couple of people trying to help the Somali people by doing business in Awdal, Somalia. We were talking about the cultural mismatch between the Somali oral culture, where a written contract is no better than an oral contract, and an oral contract needs witnesses and a ceremony to become non-negotiable, and Western culture, where people "want it in writing".

And it seems that in most of the poorer parts of the world, it's considered acceptable and even desirable to do one's best to take advantage of your trading partners. Not so in the USA. In the USA, we presume that businessmen will be honest, from the first trade. This greatly lowers the transaction cost, and allows us to do much more business in the same amount of time.

To do business in Somalia, or India, or Peru (specific examples that were given), you must first establish trust by doing small amounts of business.

— Russ Nelson, St. Lawrence Valley (NY) Friends Meeting.

I appreciate deeply the history and economics lessons which you teach with these emails every week. I learn quite a bit from reading them. It seems to me for the last 40 to 50 years Friends have been caught up in what many would see as a "heroic" battle against the government and large corporations. I think the battle was morally justified as there were significant parts of the population which were unfairly (and cruelly) kept from competing in the marketplace, many times at the hands of governmental and corporate forces.

But a fair amount of peace and prosperity came to the country in the 1980's and 1990's. Now this did not eliminate all of our social ills, but a great majority of the population experienced an increase in wealth and security during this time. I think this fact and nothing else explains why that population has voted in a conservative manner in every election since 1976. And I count the election of Bill Clinton within that period as no exception, if we understand that the Clinton administration was simply less conservative than the preceding Republican administrations.

This I believe has created a sense of ennui amongst Quakers. What attracted many outsiders into Meetings in the 60's and the 70's (the sheer heroic work that needed to be done) is no longer there. The Vietnam War, the de facto and de jure cruelties of racism, and the monolithic military/industrial complex don't hammer us anymore. Instead of huge moral conflicts, we are now faced with a thousand smaller ones that kind of nitpick at the outside of our lives and never really get under our skin long enough to push us to do anything. So without a crisis in the culture modern Quakerism, built upon activism, languishes.

If you throw the WTO and the IMF out there into this frustrated desire to fight the heroic fight, you get Seattle, an opportunity for many activists to strike at a bogus Goliath because they are unable to convince a conservative population of their views.

I hope one day to see Friends turn away from this approach. I would rather see us return to our testimony of simplicity, teaching it in our Meetings and living it in our lives. I would rather see us put our efforts into assisting the many NGO's that are doing the real work of helping poor people to gain a competing place in the market. Over time, that is where one can have an impact; providing money and volunteer and professional help to those organizations that are building schools, organizing unions, running health clinics in the developing world. We could spend our energy building up the developing world's human infrastructure and in this way help change things from the ground up, instead of trying to throw stones at a giant.

— Rich Ailes, Middletown Monthly Meeting (Concord Quarter), Philadelphia Yearly Meeting.

I have heard it said that war is an act of insanity because when nations go to war they usually attack their trading partners, thus doing horrific damage to themselves as well as their victims. In other words, because of his insanity, the aggressor fails to understand the consequences of aggression and as a result he does what no rational person would. Thus, rational thought and action will not prevent war. This line of thinking holds out little hope that trade can overcome war. Would you care to comment?

— Doug Stevenson, Boulder (CO) Friends Meeting.

Reply: It is not so much trade itself as it is the trust engendered by trade that diminishes warfare. And it may take centuries to do so. But it has done so, historically. Nations that allow their citizens a certain level of freedom have never fought a war against each other. There's only three caveats:

  1. "Freedom" means what you think it means: freedom of speech, religion, travel, and press. In other words, a classic liberal Society.
  2. A free society must have been established for a few years before the democracy effect kicks in.
  3. A war is defined as greater than 1,000 battle dead.

— Jack

On employers who abuse in sweatshops: normal market competition will force these bozos out of the market (in time; good things never happen overnight). A free market doesn't tolerate nonsense like this. It doesn't abide racism. That's why the South had Jim Crow laws — because individual shopkeepers couldn't enforce racism on their own. The first shopkeeper who treated all customers fairly would have out-competed the racists, even if he didn't want to.

The free market's intolerance of intolerance, they no doubt claimed was a "market failure" which needed to be redressed by government action. Adam Smith's invisible hand forces people who are solely concerned with their own welfare to be very much concerned about the welfare of their customers. Moreover, it forces people who are actively hostile to would-be customers to grudgingly trade with them, lest their competitors do so first. And, in this context, any sweatshop which treats its employees gratuitiously poorly will be out-competed by those who don't.

— Russ Nelson, St. Lawrence Valley (NY) Friends Meeting.

I'm reminded of an article in the current issue of The Public Interest. It is a survey of leaders of business, the media, and Hollywood. The business leaders at least expressed considerably more trust in others than did the elites from the other two. Maybe they were faking, but I can't see why they would. It is at least inferential support for your point.

Your comment on favoring choice reminds me of Robert Nozick's proposition in Anarchy, State and Utopia, that there should be freedom for "capitalist acts between consenting adults."

— Steve Wiliams, Bethesda (MD) Friends Meeting.


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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting.

Editorial Board

  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Herbert Fraser, Richmond (IN) Friends Meeting.
  • Asa Janney, Herndon (VA) Friends Meeting.
  • Gusten Lutter, Mountain View Friends Meeting, Denver (CO).
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor.
  • J.D. von Pischke, a Friend from Reston, VA.
  • Wilmer Tjossem, Des Moines Valley (IA) Friends Meeting.
  • Faith Williams, Bethesda (MD) Friends Meeting.

Members of the Editorial Board receive Letters several days in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

This newsletter was formerly known as The Classic Liberal Quaker.

Copyright © 2001 by Jack Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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