Broken trust has to be fixed. Frances Coppola explains why there is no substitute.
The foundation of human society is trust. Right from the start of their lives, humans trust other humans. Children trust their parents to take care of them. Sometimes, that trust is broken: the child is neglected or abused, or the parents abandon the child, or are killed, and the child starves. For small children, and indeed for anyone who is wholly dependent on the care of others, broken trust is an existential threat.
Adult humans can be self-reliant in important respects: we can feed and clothe ourselves, find shelter, even trade with each other without trust. But we are social animals. We need company. And finding company when there is no trust is all but impossible. How can you socialise with people you can’t trust? Friendship and love are fundamentally about trust. And humans can’t survive without friendship and love. Without human contact, staying alive is very hard even if all material needs are met. Depriving someone of all human contact is torture.
When trust fails, humans die. Perhaps the most obvious example of this is war between countries that were previously allies, or conflict between ethnic groups that previously coexisted peacefully. But wars don’t just destroy trust, they also create it. To win a war, members of the tribe must trust each other absolutely. These days, we undertake ritual wars in the form of team sports. Members of a football team must trust each other absolutely if they are to have any chance of winning because the team that doesn’t pull together, loses.
And yet trust is constantly being broken. It seems to be a propensity of human nature that those who have power over others tend to abuse that power. And the more power they have, the worse the abuse.
Abuse of power may take the form of physical and sexual abuse, as with the football coaches who abused the young footballers they were training. But perhaps more often, it takes the form of financial, economic and institutional abuse. We know this under a different name. It is called corruption.
Corruption is a fundamental breach of trust. Society entrusts certain individuals with primary responsibility for its fundamental institutions: rule of law, administration of public services, protection of the polity, creation and management of the means of exchange. When these individuals are corrupt, the institutions themselves can no longer be trusted.
The cost of corruption is often counted in financial terms: how much of our money have government officials, corporate fat cats or dishonest bankers diverted into their own and their cronies’ pockets? But the real cost is the disintegration of public and private institutions. At the limit, widespread corruption destroys the fabric of society and it costs lives. When those in authority can’t be trusted, people die.
When those in authority can’t be trusted, people die.
Failure of trust in authority and institutions often expresses itself through disturbances in the behaviour of the medium of exchange. When money dies, as it did in Germany in the 1920s, it is because people no longer trust the institutions that create and manage it.
Unfortunately, monetary institutions are particularly prone to corruption. The greed and corruption revealed in the 2008 financial crisis seriously damaged trust in the banking system. In the immediate aftermath of the crash, the Occupy Movement highlighted the need to root out corruption in the financial system and hold bankers to account. The Libor rate rigging scandal further emphasised the need for cultural reform in banks.
But the only people who were held to account were a few traders and junior bankers. The people who ran the system got off Scot free. No wonder people are still suspicious of banks.
People are increasingly suspicious of central banks, too. Many see quantitative easing (QE) as bailing out banks and propping up a corrupt financial system. And there is growing fear that the enormous quantities of QE done by the US Federal Reserve in response to the pandemic will cause uncontrollable inflation.
Some central banks have been accused of interfering with political events to support the existing international order. For example, Brexit-supporting politicians and media alleged that the Bank of England deliberately produced unnecessarily gloomy forecasts about the effect of Brexit to support the Remain side in the referendum. The opacity of the Bank of England’s decision-making processes makes it all too easy for allegations like this to stick.
In the Eurozone, the European Central Bank (ECB) has repeatedly been accused of interfering in fiscal matters. But even more damaging was the European Union’s (EU’s) handling of the banking crisis in Cyprus. When Cyprus’s two biggest banks failed in 2014, Cyprus was forced by the Troika of the EU Commission, the ECB and the International Monetary Fund to bail out the banks with large depositors’ funds. Those depositors, who included Cypriot institutions, such as the University of Cyprus, lost around 60% of their money. Subsequently, the EU formalised a resolution regime for European banks that basically said that if you have a lot of money in a European bank, and that bank fails, your money could be seized to rescue the bank. Now, the Cyprus crisis and the EU’s bail-in regime are often cited as a reason not to trust banks, central banks or governments.
Loss of trust in banks, central banks and governments lead some people to call for replacement of the entire monetary system with something that central banks and governments can’t control.
Loss of trust in banks, central banks and governments led some people to call for replacement of the entire monetary system
“The root problem with conventional currency,” said Satoshi Nakamoto in 2009, “is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
Satoshi launched a digital currency that required no trusted banks or central banks, were private, anonymous and borderless, and could not be seized by governments. That currency is Bitcoin.
Bitcoin has now sparked a host of competitor cryptocurrencies. But underlying them all is the same traumatic failure of trust. “We cannot trust banks, central banks or governments,” the thinking goes, “so we need money that will work when there is no trust.” Some people even dream of immutable code replacing public institutions, private corporations and governments, so there is no longer any need for humans in positions of authority and thus no risk of corruption.
I understand the pain that has brought people to this position. But a society where there is no trust is a dying society. Eliminating the need for trust in institutions won’t repair the damage. And code is no substitute for human relationships. It is relationships that bring human societies to life, and relationships are impossible when there is no trust. Somehow, we have to restore the trust that has been broken, so that we can live again.