Trust: Economic Notions and its role in Money and Banking

Abstract

This thesis has two aims; to explore the economic notions of trust to develop a coherent understanding of trust within economics and to apply this understanding to the operation of money and banking. There has been a recent explosion of work about trust within economics but little consensus. This thesis explores this body of work by first developing a framework based on the different perceptions of the work of Adam Smith. The framework argues that the academic discipline of economics can be understood as mirroring the discussions of the work of Adam Smith. The Academic discipline of economics can be seen as comprising of approaches that only consider behaviour as relating to self-interested and those approaches that have adopted a stance that includes both self-interest and social, organic behaviour. The beginning of this thesis explores the notions of trust offered by Behavioural Game Theory and Institutional Economics and argues that the notions of trust developed using the institutional framework offer a richer conceptualisation and are more widely applicable to other areas addressed by economics. This concludes by developing a theory of trust in the institutional tradition based on the work of Simmel and draws a distinction between trust as applied to agency and confidence applied to structure. After drawing a distinction between trust and confidence based on agency and structure, this thesis then uses this theory to address the understanding of the operation of money and then banking. Money, or more specifically the operation of money as influencing behaviour, can be understood as being a complex institution with both agency and structural elements allowing a coherent understanding of money and trust. The same can be said of trust and banking, but a very different model develops as banks are organisations rather than complex institutions. This thesis concludes by considering the current financial crisis and the policy responses using the trust and confidence framework. Trust has been an important concept for money and banking, but without a satisfactory framework for analysis. The contribution of this thesis is to have developed a coherent framework for analysing trust, and applying it to money and banking.