Cost of trust

A series of passages from the recently read Black Rednecks and White Liberals by Thomas Sowell. Combative to the point of provocative but as usual crammed with unexpected facts or interpretations of facts. Page 89.

One of the many practical benefits of close ties within a middleman minority has been an ability to conduct business with one another at lowers costs because of less need to resort to precautions before making transactions or to the formal legal system afterward, both of which can be costly and time-consuming. Thus Lebanese diamond dealers in Sierra Leone have handed over diamonds to one another without even getting receipts - as Hasidic Jews have done in New
York's diamond district. Such mutual trust has also been common in commercial transactions in general among the overseas Chinese in Southeast Asia. It was likewise the basis of international trade among the Armenians in earlier centuries:

These widely spread but highly interrelated individual enterprises operated under the ethos of trust. Trust, and the shared moral and ethical norms underlying it, helped the Armenian trading houses to avoid the relatively rigid and costly operation of the hierarchic system of organization practiced by the English. Seen in this light, trust served as a human capital, but one that could not be acquired through a rational investment decision. It accrued to the Armenian merchant community as a result of their collective sociopolitical experiences over many generations. Based on family kinship and trusted fellow countrymen, the Armenian trading house did, indeed rely on trust as its principal means of organization and control.

These middleman minorities have thus been able to take advantage of business opportunities that others would either be reluctant to risk or could do only with precautions that cost time and money. But such a mode of operation becomes practical only on the basis of strong social ties and enduring economic relationships that make cheating too costly to attempt.