Trust is a crucial economic force, from medieval Mediterranean traders to contemporary business networks, we explore how trust shapes transaction costs and organizational success.
Welcome to Plain Sight by Wyzr, where we bring hidden patterns into plain sight. Every week, we explore stories and ideas that help us understand why we are the way we are.
Trust: The True Currency of Human Exchange
Picture this: It’s the 11th century. The Mediterranean Sea pulses with commerce, connecting three continents through a vast trading network, spanning from Islamic Spain (al-Andalus) in the west to Syria in the east, linking diverse political, cultural, and economic regions across Europe, Africa, and Asia.
From Alexandria to Palermo, from Tunisia to Sicily, merchants orchestrate a commercial empire spanning thousands of miles. At the heart of this network are the Maghribi traders – Jewish merchants who emigrated from Baghdad to North Africa, and who control vital trade routes across the Mediterranean.
The commercial scale is impressive even by modern standards. Documents studied by economic historian Avner Greif show certain individual shipments valued at 2,000 gold dinars. In today’s terms, such a shipment would be worth around $1 million just for its gold content. But the actual purchasing power was far greater – this sum could pay a soldier’s salary for over 160 years or purchase multiple estates in the medieval economy. Most remarkable is that these traders didn’t just manage one such shipment – they coordinated multiple valuable consignments simultaneously across various trade routes, building substantial fortunes.
Even the geographical expanse of their business empire was impressive. A single merchant might coordinate agents trading Egyptian flax, North African olive oil, and spices coming through Red Sea ports.
Yet the most remarkable aspect wasn’t the wealth these traders commanded, but how they operated. In an era before international courts, corporate contracts, or digital payments, these merchants transported precious cargo across seas infested with pirates, through territories with different rulers, languages, and customs – all without any enforceable legal protections.
Their secret weapon was remarkably simple: trust.
When a merchant in Cairo needed someone to sell his goods in Sicily, he’d entrust valuable merchandise to an agent who would handle the transaction. The temptation for agents to abscond with the goods was enormous – yet they rarely did.
Greif, through a meticulous study of the historical documents discovered that these merchants maintained detailed correspondence about the trustworthiness of various agents. If someone betrayed that trust, word spread rapidly through their network. The consequence was severe but simple: exclusion from the entire trading community – effectively ending one’s commercial career.
Their system relied on a fundamental principle: “A man’s word is his bond, and his reputation in the community is his collateral.” This wasn’t just a noble sentiment – it was practical economic infrastructure that made possible what legal systems couldn’t.
Trust Made Visible
Look at the cash in your wallet. What gives it value?
It’s not the paper or the ink. In fact, that currency note is intrinsically worthless – merely paper with elaborate printing. Its value exists solely because of a collective belief system we’ve created. Money is perhaps humanity’s most successful mass illusion – a shared fiction that works only because we agree it works.
Money is essentially trust that’s been made portable. When that trust erodes – as in cases of hyperinflation like Zimbabwe experienced in 2008 – the system collapses rapidly, revealing the magical thinking that underpinned it all along. Our entire economic system, from local markets to global finance, functions purely on this shared belief in something that has no inherent value beyond our trust in it.
Just as the Maghribi traders turned trust into a currency of commerce, our modern financial systems have formalized this principle. The banknotes we exchange and the digital currencies we transfer are simply trust in physical or digital form – a remarkable evolution of the same fundamental concept that powered trade a millennium ago.
The Tax We Don’t See
Fast forward to today. Standing in line at airport security, removing your shoes, emptying your pockets, pulling out your laptop, and watching your belongings disappear into an X-ray machine – all while being scrutinized by security personnel. Ever wonder what this process is really costing you beyond the extra hour of your time? The official fees are just the beginning. The real cost is what economists call “transaction costs” – the hidden tax we pay on every exchange when trust is absent. Consider this difference: lending to a friend requires little more than a verbal agreement, while lending to a stranger demands contracts, verification, collateral, and legal safeguards. Each additional step represents the cost of not trusting. These costs aren’t just financial – they drain time, attention, and psychological energy.
And here’s something we rarely talk about – the mental drain of living in a low-trust world. Think about traveling to two different countries. In one, you’re constantly checking your pockets, negotiating every taxi fare in advance, questioning whether the restaurant is overcharging you, and triple-locking your hotel door. In the other, you simply assume things will work as they should.
That hypervigilance? It’s exhausting. I have experienced this firsthand when moving between countries with different trust levels. In high-trust environments, my mind felt suddenly unburdened – creativity flowed more easily, and I found myself more willing to try new things and connect with strangers. It was like discovering I’d been running with weights all my life, and someone had just removed them. That mental bandwidth we spend on constant verification and protective measures? It’s a tax we’ve become so accustomed to paying that we barely notice it anymore.
This transaction cost becomes particularly visible in India. On measures of generalized social trust, various international surveys have shown that India ranks relatively low compared to some other nations. This manifests in many daily interactions requiring extensive verification. These aren’t just bureaucratic hurdles – they represent economic inefficiency. Research from international economic organizations suggests that high-trust societies gain significant economic advantages precisely because they minimize these friction costs. Yet within this broader low-trust environment, certain communities have created islands of high trust – demonstrating how internal systems can overcome external challenges.
Community Trust Networks: The Power of Oddkhan
The sustained business success of Gujarati, Marwari, and Jain communities across India demonstrates how trust functions as economic infrastructure. These communities have developed sophisticated social networks that dramatically reduce transaction costs and create competitive advantages. At the heart of this system is “Oddkhan” – a Gujarati concept meaning “knowing and being known” – which emphasizes relationship-building as the foundation of commerce.
Through these networks, business opportunities, critical information, and resources flow with minimal friction, while reputation serves as collateral. Family and community bonds function as organizational structures that blend personal relationships with commercial activities, creating environments where multi-million dollar transactions can be concluded with a handshake rather than extensive contracts.
Gujaratis often use a phrase - “Bhai bharosa na paisa che!”, meaning loyalty is our currency.
This also explains why merit sometimes takes a backseat to trusted networks in hiring and business partnerships. When bringing someone into a business from a trusted community, decision-makers make an implicit calculation: the costs of monitoring and enforcing standards with someone connected to a trusted network are lower than with an unknown entity – even if the latter has superior credentials on paper. This pattern helps explain the prominence of these business communities who created internal trust networks that substantially reduced their transaction costs.
The Trust Paradox
Research in behavioral economics demonstrates an interesting finding: extending trust often creates trustworthiness in response. Initial trust-giving frequently elicits reciprocal trustworthy behavior.
This creates what game theorists call a coordination problem. Everyone would benefit from a high-trust environment, but getting there requires individuals to take the initial risk of extending trust.
So here’s a question worth pondering: What would happen if you began extending trust first in your own business relationships?
It sounds risky, doesn’t it? Perhaps even naïve. That’s because we’ve been conditioned to believe that verification must precede trust – that trust is earned, not given. But what if, like the Maghribi traders a thousand years ago, we recognized that trust isn’t just a warm, fuzzy feeling but a practical economic tool?
Think about a relationship in your professional life where you’re spending significant energy on verification, monitoring, or defensive positioning. What would change if you redirected even a fraction of that energy toward creating value instead?
I’m not suggesting blind trust. The Maghribi traders, the Gujarati and Marwari business people, all have sophisticated mechanisms for identifying and responding to trust violations. But their starting point is different – they begin with trust as the default, rather than suspicion.
In the end, we might discover that money isn’t the true currency of human exchange – trust is. While money merely facilitates transactions, trust enables the entire system to exist in the first place. It’s the hidden currency that determines whether we spend our energy creating value or defending against exploitation. And in a world where attention and energy are increasingly our scarcest resources, this might be the most valuable efficiency of all.
What we’re reading this week
The Speed of Trust by Stephen M.R. Covey.
This book makes a compelling case that trust is not merely a soft, social virtue but a hard-edged economic driver that impacts business outcomes. Covey demonstrates how high-trust organizations outperform their low-trust counterparts by creating what he calls a “trust dividend” – essentially, the elimination of all the verification, monitoring, and defensive systems that low-trust environments require. It’s a practical guide for leaders looking to transform their organizations by building trust from the inside out.
Hope you enjoyed this edition of Plain Sight. If you did, do share with your friends. Until next week.
Best,
Utkarsh
