trust definition us history

trust definition us history

The Evolution of Trust in United States History

1. Introduction to Trust and its Significance

Establishing trust presents a public policy problem of first magnitude. As the Founding Fathers articulated in the preamble to the Declaration of Independence, major goals of the new nation were to “form a more perfect Union, establish Justice, insure domestic Tranquillity, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” The need to develop trust made its way into their discussion even though the word itself is never used. A critical mass of responsible social actors formed a general will more detached and reflective from the specific wants of the public and therefore more “trustworthy” when the country’s social order was in question. Only then could they be expected to “pledge to each other our Lives, our Fortunes, and our Sacred Honor.” Risk was minimized and the common good maximized only when trust, developed gradually throughout history, was indigenous to the social landscape of the United States.

Trust is a more important concept than that conveyed by its academic focus on loyalty, honesty, and fulfillment of duties or obligations. In its micro and macro most potent forms, trust not only lubricates relationships and organizations, but when extensive among citizens permits honest, effective government with a focus on the common good. A cynical, distrustful citizenry, on the other hand, can drag down both economic and political institutions in national wars and in countless lesser skirmishes. Unfortunately, trust is also a relatively ephemeral quality that can take decades to create but mere instants to tear down. It can leap across races, regions, languages, political systems, and ideologies to create a social order more benign than the most intricate contract.

2. Trust in Early American Society

Nor were the colonists without hardships. Disease, malnutrition, starvation, internal conflict, and conflict with Native Americans led to significant death rates for new arrivals. Discouraged potential settlers and were low on the colonial social hierarchy, and were not in normally short supply. But volunteers dared, and a majority of colonists were volunteers. Why did they go, and why did they stay? Part of the story has to do with the unique role the new settlements held for English society at the time. Given the options open to them in England, it is hard to avoid the practical conclusion that colonial servants were making a good deal.

Trust played a vital role in the survival of early colonial settlements in the New World. Historians argue that trust was particularly important because, with the exception of the Pilgrims, all colonists came to America as indentured servants. For the wealthy English, the primary investment in the new colonies was the labor of servants, who were to grow and handle the lucrative tobacco exports. Indentured servants, then, were at the heart of the labor force sustaining the tobacco industry in Chesapeake Bay. In fact, the seeking out, transport, and sale of servants became so important that in the late seventeenth century, the captains who brought them to the colonies became known as “soul drivers.”

3. Trust in the Founding of the Nation

Market mechanisms alone would never have guaranteed a long-lasting, credible, and desirable outcome. Unfortunately, America’s revolutionary gains in enhancing the contractual protection of capital were mostly dissipated in unnecessary internal and external conflicts, engendered by protective tariffs, rules of legal tender laws, restrictions of their usury laws, and defaults on the public debt. The ultimate result was the financial panic of 1837 and a century bloodied by an internal civil war. We regret that the scientific discussions of the theory of expropriation and peaceful settlement of disputes were still in their infancy in the days of Daniell and Webster. The last half century of the century witnessed some federal retrenchment. We would have harmed these difficult gains if there had been constraints on economic and political economies in six vastly different situations.

The founding of the United States was triggered by a debate over the creation and protection of the contractual right to hold assets. In our historical view, a key element which made the US Constitution sustainable was its complicated system for the protection of such rights and contracts. Paradoxically, the hope of contractual protection came from artful politicians and not economists. The United States finally became economically and politically independent from Europe although Europeans held the bulk of US assets. Many political decisions, such as the proper funding of the public debt and the incorporation of the Bank of the United States, changed the distribution of these valuable contracts and also much else. In the case of early American history, a credible commitment was possible. Politically, the dominant interest groups committed their interests in favor of a long-lasting Constitution signed in 1787.

4. Challenges to Trust in American History

But these two effects are a result of the terms of the deal, which establish the basis for trust. The trust required for the widespread conversion of private funds is a result of particular tax, benefit, and information systems. The first challenge is to state the principles and the economic reasons for a particular system. The second is to recognize the disparity between the economics and social science concepts underlying private land trusts, the Social Security “system”, Multi-Employer Trusts (METs), Common Situs Picketing (CSP), Cooperatives and Government Sponsored Enterprises (GSEs), and the provisions of current law.

The different approaches of John Adams, Benjamin Franklin, Ethan Allen, and Samuel Adams to the land trusts of the 18th century – the river, canal, and irrigation company, the mill dam, the fish preserve, the turnpike, the nail factory, or the various agricultural trusts – are examples of the community setting the terms of a particular private deal. These entities have something more in common than the constitution and the procedures proposed today by so-called social scientists: a clear and simple objective, the pooling of savings, the minimization of principal-agent problems, the requirement of tangibility in the assets backing the shares, the concern for low costs, and the trading of equity capital.

5. Contemporary Issues and the Future of Trust in the United States

The evidence could suggest that having one’s own Libor-like rate and using this information has replaced the 2007/8 misplaced belief in the endless influx of fresh equity capital. If so, the claim by Greenspan and others that the resolution of the bubble is a mostly psychological phenomenon, with only small economic effects from the recession or decrease in income of the type that drives foreclosure, is shown as false. The confusion sowed about the true indices of value in the price discovery process for housing and related assets was already known. Returning to the economic conversation we have spent so much time developing should include acceptance of data-driven conclusions once the required data are available.

The use of trust levels as a manner of incredible controversy about the effects and possible policy actions is not widely appreciated. While most discussions focus on macroeconomic phenomena which may or may not be related to the topic of trust per se, these discussions are rarely connected. Bubbles in asset prices are one example. A large number of homeowners are convinced that the prices they could get for their homes rise for well understood capital gain and bubble-related reasons. In the spring of 2008, when asked if they wanted to use the extra capital gain on the sale of equivalent housing in the same market as a down payment for a better housing unit, only 40 percent said no. This suggests that homeowners are choosing illiquid life cycle deposits, including the apparent right to spend perceived capital gains on other life events, and holding them.

We have changed a lot since the late 1860s. Trust has changed a lot since the late 1860s. Markets have changed a lot since the late 1860s. Technology has changed a lot since the late 1860s. All these changes have led to an evolution in the nature of trust which does not easily map onto older analyses. The concerns of the classics – affording multiple versions of a moustache cup, safely buying from another town – have been reduced in seriousness. In what follows, I will largely leave aside the possibility of a return to the Galbraithian world of “original-brand fakes” and worries about the infinite replication of common household goods and dwell on what has replaced these issues in the top slot of concerns of economists. The observation that economic change is met by psychological adjustment will lead in the next section to the identification of issues that will raise more complex challenges to the trust literature.