Over the past few weeks I’ve watched a social experiment unfold that illustrates just how integrity, honesty, and trust matter for a free market. Free exchange significantly depends on the virtue of the individuals engaged in trade. Economics is not merely a science of numbers; it requires ethics.
Homeschoolers are often subdivided into tribes based on the curriculum they choose to use. This is helpful because there are points of common interest as people move through the school year at different rates. Discussions of how certain activities are best modified or facilitated help prevent isolation. Along with this community of shared knowledge, parallel markets tend to pop up to facilitate the exchange of used materials.
Normally these marketplaces are self-regulated—they are great examples of free markets. Sellers describe the used materials honestly and ship them carefully. Buyers pay in a timely manner. Even in a social media forum where there is relative anonymity, these sorts of exchanges have historically occurred without a hitch.
Recently, however, there has been a rash of fraud in one of the online exchange forums that my wife watches. Individuals with false accounts, sometimes multiple accounts, have acted deceitfully and disrupted the entire community.
Instead of the odd complaint about the condition not being quite right – a bent corner or unexpected highlighting – there have been numerous cases of individuals agreeing to purchase materials, paying, and then denying that the package ever arrived. They have persisted in denial despite tracking information that indicates delivery.
Due to buyer protections, the money gets returned to the supposed buyer and the seller loses out. Additionally, others have agreed to sell curriculum only to take the money and delete the account. The buyer loses money and gets nothing.
Forum rules prohibit these dishonest acts, but the recourse for defrauded individuals is often limited because of the reality of online marketplaces, which enable geographic diversity and relative anonymity. Since a package of a year’s curriculum can cost several hundred dollars, there are obviously a number of people upset by the dishonesty in the community.
Discussions are raging in the curriculum marketplace forum as moderators try to sort out means to prevent future frauds. The outrage is significant, but possible solutions are limited. There has been a noticeable decline in the number of postings of curriculum for sale. Why should someone risk selling to a social media account with a potentially fraudulent history and profile picture? Without trust, the market begins to fail.
How the Fraud Puts Everyone at a Disadvantage
One of the options available to those who desire to have access to an online marketplace with greater protection is to retreat to one of the big name exchange websites where a bigger player, like Amazon or eBay, has more coercive power to ensure the deal is consummated. This approach is not without disadvantages.
One disadvantage is that it simply costs more to exchange goods on big name marketplaces. When trust decays, the costs of exchange rise as both sides pay a mediator to help guarantee the exchange.
A second disadvantage is that distrust tends to negatively influence prices and sales for low volume sellers. It is more likely for someone to pay a bit more or simply choose to purchase from a seller with 10,000 sales and a high rating than from a family who sells only occasionally and has few to no ratings. The same concern over dishonesty that is destroying the free exchange in the social media forum costs agents in mediated online marketplaces, too.
A Society without Trust
The lesson of a homeschool curriculum market is a small-scale example of the economic costs of a society without trust. The unfortunate reality is that lack of trust costs money and reduces opportunity.
Shifting ethics in the broader marketplace instigate calls for more government regulation, consumer protections, and licensing requirements. These interventions in the market create overhead that costs time and money. Such regulations increase the difficulty of small businesses from entering the market, which disproportionately impacts people with less money.
There is no easy response to this growing problem, which extends beyond curriculum sales. For my family, we are waiting to see what the online moderators do before we make another purchase from the homeschool curriculum exchange forum. We may consider paying the higher price for new curriculum to avoid the risk. That protects my family, but it doesn’t fix the problem.
If we are to have a free market, we must have a virtuous society. That needs to start with Christians being meticulously honest in our dealings. It also needs to include creating workplaces and businesses that value integrity and fair exchanges. Without trust, the cost of marketplace participation will only continue to rise and opportunity for all—especially the poor—will only shrink.