Cafe Hayek: Trust, Faith and Confidence

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March 29, 2005

Trust, Faith and Confidence

Russell Roberts

The other day I had to get some important tax receipts to my accountant. He's in St. Louis, it's getting close to April 15 and it's really important that they don't get lost. So I sent them via FedEx.

The woman behind the counter was pleasant as I filled out the air bill. And it dawned on me that I had no worries whatsoever that my package would arrive in St. Louis the next morning as promised. I didn't worry that the woman might open the package after I left the office to see what I was sending. I didn't worry that the man or woman who would touch the package next might open the package to see what was in it. I didn't worry that the myriad of people who might come into contact with my package would be checking it out to see if there was anything in it worth stealing.

I also never worried for an instant that one of the people who would come into contact with my package might just decide it was too much trouble to deal with it and throw it away.

Total strangers I would never see. What word best describes my lack of worry? Was it trust? Faith? Confidence? And what was the source of my contentment? Was it simply the law of large numbers? After all, that's what I rely on it when I park my car at the airport parking lot. I know there's a chance someone will break into my car. But I don't worry much about it. There are lots of cars to choose from. Mine is probably fine. But if anything, the law of large numbers works against me at FedEx. After all, if one package doesn't make it, what's the big deal? Who's going to notice other than me. Whoever steals it or throws it away could say it's hard to keep track of so many packages. It fell off the truck. It got lost in a crevice. A dog ate it.

My lack of worry at FedEx is different. It can't be trust. There are too many people touching my package who I will never see. How can I trust them? I know nothing about them. The woman behind the counter seemed like a decent enough soul. I trusted her somewhat. But I don't even think that's the right word my feelings about her. But it's certainly the wrong word to describe her co-workers who brought my package safely to St. Louis. I can't say I trusted them. I knew nothing about them.

Faith? Seems too open-ended or something. Faith comes from having used FedEx before and knowing that they always get the job done. There's a little of that. But I wasn't even worried the first time I used FedEx.

Confidence seems like the right word. Confidence born from an understanding of how the division of labor works in a modern economy. What Hayek called the extended order of human cooperation.

You can see the miracle of the modern economy if you contrast FedEx with a different system. Let's look at a different way to get a package to St. Louis. I go down to a street corner and find an honest looking person. I give this person my package and a bunch of $1 bills. Here, I say. Take this money and this package. I know you probably don't need to go all the way to St. Louis yourself. So take it part of the way and give the package and some of the money to the next person on the promise that that person will keep the chain unbroken.

How would I feel using that strategy? I would be trusting the first person. But the ones after that? And would I have faith that my package would arrive? Confidence? Neither. The package would be unlikely to arrive and I would certainly need a lot of $1 bills to raise my hopes to even a modest level. In fact, it's not obvious that giving the first person more money rather than less would make much difference to the odds of the package arriving.

So what's different about FedEx? On the surface, it's the same thing. I'm expecting somehow that a lot of strangers are going to come through for me and keep their promises. What's different? What's different is the feedback loops that exist to insure performance. In the case of FedEx there are consequences of failure. In the case of the guy I find on the street corner, there are no consequences for failure. FedEx tries to hire honest people. They fire people who consistently lose packages or steal them. They honor and reward people who do their job well. And why does FedEx try so hard? Who is FedEx? Why does FedEx try so hard to keep its reputation intact? Competition is part of the answer. But there is more to it as well.

Even those feedback loops that keeps the FedEx employees honest work best when people feel guilty being thieves and slugs. Does capitalism work best when peole are basically honest or does capitalism help create the virtues that make it work well?

The other remarkable part of the extended order of human cooperation is that FedEx delivered the package to St. Louis by 10:00 am for only $19. Nineteen dollars! What a lot of confidence can be bought for only $19. What a pleasant and effective world we live in.

Posted by Russell Roberts in Cooperation | Permalink

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