[This is an excerpt from The Five Stages of Collapse which seems quite topical given the new banking rules being set down in Europe and the US, according to which your bank deposits will no longer be guaranteed. With the precedent being set in Cyprus, bank deposits are being turned into unsecured loans, and when the bank folds you might get some bank stock, which you may or may not be able to sell, or you might get nothing at all. Now that large cash transactions and stockpiles are illegal, bank deposits liable to evaporate without notice, and gold likely to be re-regulated and re-confiscated before too long, what’s your plan for opposing financial tyranny? I believe that before you can hatch any such plan, you must first decide: Who do you trust?]
Within a modern, highly financialized economy, most interactions are impersonal, based on purchase and sale within a market system. If you are the loser in any one transaction, it is your fault, because you chose to deal with people you had no particular reason to trust, and therefore it is your mistake. If the swindle is not illegal, you have no legal recourse. You can, of course, complain to a few friends, perhaps even blog or tweet about it, but then, in a market economy, more of a stigma attaches to being swindled than to swindling, and most people are reticent when it comes to telling the whole world that they let someone take advantage of them.
Once the financial sector goes through its inevitable deflationary collapse followed by a bout of hyperinflation, financial arrangements unravel precisely due to mistrust: nobody, from the largest banks to the humblest private individuals, knows who to trust—who is still “good for it.” Whatever transactions are still possible tend to be conducted in a furtive, suspicious, streetwise manner:“Show me the goods!”—“Show me the money!” Whatever business reputations people had in the financialized economy are either ruined or simply fade away. New reputations are established based on readiness to resort to violence or ability to oppose violence. For an individual who is not backed by a criminal organization, the chances of getting robbed go up appreciably. Instead of advertising, businessmen hide, afraid to expose either their product inventory or their wealth. For many, dealing with strangers becomes simply too dangerous.
A cultural flip is needed to change from impersonal, commercial relationships to personal relationships based on trust, and the first hurdle, for many people, is in understanding what trust actually is, because there is no innate human quality called trustworthiness, possessed by some people, lacking in others. Rather, it is more along the lines of a generalization concerning a given individual’s behavior over time, within a given relationship. Trust is transactional: a person needs a reason to trust you, and you need a reason to trust that person. There is, however, such a quality as trustfulness: this is the property of small children, tame animals and, most unfortunately for them, many regular, salt-of-the-earth, mainstream Americans. It is of negative survival value in the context of financial collapse. It is being exhibited for all to see by some of the people who recently lost money when MF Global stole it to cover some private bets it had made. They licked their wounds, complained bitterly, and then…went looking for another financial company—to be taken advantage of again. Since the head of MF Global wasn’t punished, why wouldn’t another company do the same to them, knowing that it can do so with impunity?
There also seems to be a certain set of traits possessed in abundance by a category of highly effective American financial operators that makes it easy for them to prey on trustful people. It may be the suits they wear, or the English they speak or their general demeanor—let us call it “trustiness,” to go along with the “truthiness” of their financial disclosures. Deep down, trustful people feel privileged to be robbed by such superior specimens. The predator-prey relationship has been honed to the fine point of a pen: told to sign their life away on the dotted line, the besotted, trustful American gulps quietly—and signs.
Clearly, whenever there is an asymmetry between trustfulness and trustworthiness, the trustful party loses. Trust is not the property of one individual but the property of the relationship between individuals, and it must be balanced. There are roughly three types of trust. The first and best kind is trust borne of friendship, sympathy and love. People simply do not want to lose the trust of those they care about, and will do anything they can to make good on their promises. The second type of trust is based on reputation. It is not quite as solid, because someone’s reputation can be ruined without you knowing it. People who realize that their reputation has been ruined tend to stop being trustworthy rather suddenly, because they see that they have nothing left to lose in the trust game. Rather, they try to salvage whatever residual value their formerly trustworthy reputation still holds by taking full advantage of anyone who is still trustful through force of habit, lack of up-to-date information, inattention or sheer inertia. The last category of trust, the worst kind, is coerced: it is a matter of making it too expensive or too unpleasant for someone to break your trust. If you are forced to do business with someone you don’t trust at all, trade hostages for the duration of the transaction or come to some other arrangement that compels good behavior from both sides.
The people most deserving of trust are usually one’s own relatives— provided the family is a close-knit one and that it has an internal reputation for being trustworthy, which it values. This is especially the case in societies where putting a stain on the family honor is considered to be a cardinal sin. The next tier of trust is generally reserved for one’s close neighbors, if the neighborhood is a relatively static, close-knit and mutually supportive one; if it is not, then neighbors can make the worst sorts of strangers—ones you can’t avoid dealing with even though you don’t trust them. The last tier of trust consists of complete and total strangers. Here, trust has to be tested before it can be established, by taking small risks: offering small but thoughtful gifts and seeing whether there is reciprocation; putting oneself temporarily in a weakened position (perhaps even on purpose) and seeing whether the other person offers help freely, refuses to come to your aid or attempts to take advantage. At the end of the process, either the stranger ceases to be a stranger, or he is excluded.
Obviously, it is never smart to signal your lack of trust, except in confidence. But for social interactions based on trust to work well, society as a whole must have a way of excluding those who are found to be untrustworthy. In a healthy community in which people normally cooperate or trust each other, there may be a few episodes where someone breaks the trust and is expelled or shunned. In a sick community where neighbors are alienated, combative and mistrustful of each other, you are better off shunning the entire community—by relocating. Sick communities of this sort—and I have seen a few—become sick quickly and take a long time to heal, if they ever do. A certain network effect makes a degenerate condition far more durable than a healthy one. In a friendly, cooperative community, the trust is between each individual and the community as a whole: n individuals—n relationships of trust. In a broken, mistrustful community, each individual mistrusts every other individual: that’s n(n-1). A healthy community of ten individuals has ten healthy, trustful relationships. A sick community of ten individuals has 90 broken, mistrustful relationships. It seems like a better idea to try to establish and maintain the former rather than attempting to fix the latter.
It may be helpful to put the concept of normal, cooperative human relationships based on trust into a wider context. Humans are a social species, and thrive through cooperation. Opposing groups of humans often fight: the bigger the group, the bigger the war, all the way to world war and, if we ever achieve a unified world government, perhaps to spontaneous self-annihilation. But within smaller groups—small enough to avoid the pitfall of self-annihilation through major conflict— cooperation prevails. The great Russian scientist and anarchist revolutionary Peter Kropotkin, in his 1902 book Mutual Aid: A Factor in Evolution, argued that it was cooperation rather than competition that made advanced species, including humans, successful. An emphasis on competition, on setting people against each other, on forcing them to struggle against each other economically, may benefit the community if it is viewed as a machine of expansion and domination, but only for short periods of time, and to the detriment of most of its members. An inevitable holdover from this bout of over-competitiveness is that the mindset of social Darwinism and a Hobbesian “war of all against all” remains prevalent, with people deriving their sense of self-worth from their individual, personal achievements and superiority rather than from their often unstated and informal membership in various groups without which they would have surely failed. This mindset is diseased and contagious, and there may not be time to cure it. When time is short and resources scarce, a better response to those who favor competition over cooperation is to give them more of their own medicine: no cooperation at all.