April, 2003

Comments on Kevin McCabe's 'Reciprocity and Social Order: What do Experiments Tell Us About Economic Growth?'

  • Paul J. Zak

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The leading model of how the brain constructs the mind (Hayek-Hebb) identifies the critical feedback between genes and environment. Our earliest trading experiences are personal (e.g. trading toys) and our "social brain" is adept at detecting cheaters, doing social accounting, etc. In short, personal exchange is cognitively cheap. Further, personal exchange literally molds the mind. Zak & Knack "Trust and Growth," The Economic Journal 2001, show that trust arises in intertemporal exchange even absent reputation because it reduces transactions costs. Low trust countries are poor because investment lags, high trust countries are by and large wealthy. In addition, there exists a low-trust poverty trap (if trust is sufficiently low, no growth occurs).