The Lubricant

The unwritten rules have shown their power to coordinate, to exclude, to sustain cooperation and to make a display compulsory. Their economic value depends on what they enable. The volume on the contract found trust filling gaps in a relationship that no clause could completely settle; the question here raises that relationship to the scale of a society. Where people can reasonably rely on one another’s word, there is less to verify, monitor and guard. Dealings that were not worth their friction may become worth doing. But a society’s confidence can also be misplaced, or confined to a circle whose members deal honestly with one another while exploiting everyone outside it. The closing question is therefore both productive and institutional: what makes reliance well founded, how far does it reach, and can the market help create the conditions on which it draws?

James Coleman gave the productive relationship a precise place in the idea of social capital. His category includes obligations and expectations, channels of information, and norms supported by sanctions. These resources reside in relations among people and can help them accomplish things that would otherwise be difficult. They are not interchangeable with a machine, nor is social capital simply another name for an agreeable disposition. Trust is an expectation about another’s conduct; trustworthiness concerns the conduct on which that expectation can safely rest. A network may convey information about it, and a rule may help sustain it. Keeping these elements distinct prevents a circular explanation in which successful cooperation proves the presence of trust and trust then explains the success. One must identify the relationship or practice doing the work.¹

Consider an exchange with a gross gain of thirty after the good’s production cost has been met. Suppose making performance sufficiently secure requires thirty-five in real inspection, guarding and enforcement resources. The protected exchange has a net loss of five and is left undone. Now suppose reliable dealing permits the same performance with safeguards costing five. The net gain becomes twenty-five, which the parties can divide through their price. Those figures are illustrative, and the reliability is an assumption that needs support in an actual case. Merely believing an unreliable promise does not provide the same saving: it may remove the guard while leaving the loss. Nor must every exchange wait upon confidence in the other person’s character. Escrow, guarantees and verification can make some bargains feasible, at a cost, among people who have no reason for personal faith.²

Commerce can help build the reliability it uses. A business has reason to preserve a good name, improve the accuracy of what it reports, and maintain relationships whose future value would be damaged by a betrayal. Its customers can learn from fulfilled promises, provided they can distinguish performance from appearance and carry that knowledge into the next dealing. Coleman described relations formed for one purpose becoming useful for another: an organization or an acquaintance could later carry information, referrals or reciprocal assistance. Such a resource can grow within a market as well as within civic or family life. This gives a qualified answer to the reservoir metaphor. Markets can replenish some of what they draw upon; they cannot turn the purchase of a reassuring claim into proof of its truth. What is acquired must include a reason to rely.³

The difficulty is that the return to maintaining a useful social environment may reach people who do not pay for it. Imagine three firms each benefiting by four from a shared practice of checking and circulating accurate information, while one firm would have to spend eight to maintain it. If the benefits cannot be charged for, the firm contemplating the work bears eight to receive four, although the combined benefit of twelve exceeds the cost. Its refusal can be individually sensible and collectively costly. If all twelve accrue to the investor instead, that particular obstacle disappears. Coleman’s public-goods argument makes precisely this distinction: some relational resources are underprovided because their makers capture little of the benefit, while organizations supplying private goods can reward their investors. The issue is the distribution of costs and returns, not an absolute impossibility of investing in relations.⁴

The boundary of the relationship matters as much as its strength. Information that lets members protect one another can also help them exclude a newcomer or maintain a price-fixing agreement. Coleman expressly included the latter among the uses of social relations and warned that resources facilitating one activity may obstruct another. The dividend to a circle is therefore not necessarily a dividend to society. Extending dependable dealing beyond the circle requires attention to the stranger’s position: whether claims can be checked, whether exclusion can be challenged, whether a remedy can work without personal membership. These questions join the unwritten rule to the formal institution. Reputation, an internal standard of conduct and an enforceable undertaking can support one another. Their usefulness must be assessed in the particular arrangement, including the people for whom that arrangement makes exchange harder.⁵

So the unwritten rules show their productive face without becoming an asset that can be increased merely by naming it. A society can invest in practices that make promises more dependable, preserve relationships that carry useful knowledge, and repair institutions whose failures have made suspicion reasonable. Commerce participates in that work, but its private rewards need not sustain every relation from which it benefits, and its strongest internal loyalties need not serve those beyond them. The table reaches its last element with a question about the conditions under which its other elements can operate. Prices guide bargains only when the things and performances behind them can sufficiently be relied upon. The numéraire of honesty returns here as a practice: claims tested against performance, obligations honored, and confidence earned through arrangements that give people reason to keep faith.