A great post on trust as the basis of economic advance

This article from Nicole Foss outlines with great clarity the ‘trust cycle’ that I believe underlies long-wave business cycles. In times of growing trust, institutions are able to function effectively to the benefit of all. Eventually, though, that high degree of trust provides the perfect environment for the perpetration of fraud. In the end, fraud leads to a contraction of trust which both imposes costs on and limits the scale of economic enterprise. Finally, the costs of operating in a low-trust environment become obvious enough to cause people to demand reforms which, properly carried out, can restore trust. Of course, while trust can be destroyed very quickly, it needs a great deal of time to be restored.

http://www.theautomaticearth.com/Finance/scale-matters.html