Money and Trust

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Jan. 1, 2013

Money and Trust

Trinity University professor focuses on the history of economic thought

Maria PaganelliJan. 1, 2013

SAN ANTONIO - We could just beat each other up to obtain goods and services, but a much more orderly and peaceful practice has evolved - trade - and then came money, which evolved to facilitate trade. The history of economic thought fascinates Maria Pia Paganelli, assistant professor of economics at Trinity University, who says trade is successful when individuals replace fear with trust.

When animals want the same thing, or when they meet "strangers," they will generally fight - sometimes to death - in order to establish power and possession. Humans sometimes do the same. But, in contrast, humans may also learn they can gain more from trading than from fighting with strangers over the possession of a good. They may stop fearing the process of dealing with strangers and begin to trust them.  "The economy is better off, and society is better off when I learn that I don't have to beat you up to get what you have and I want, but I can trade with you instead," Paganelli said.

Maria PaganelliShe questions whether commerce makes you more moral or less moral. Does it change the way you see the other? Does it make you greedy or more willing to cheat to make money? Once a consumer sees a pattern of a business not cheating customers, the result is what Paganelli calls, echoing an 18th century tradition, a "softening of the spirit" that moves from fear to trust. To explore this "softening," she is part of a research team that conducts economic experiments to test trust levels associated with markets.

If this sounds more like psychology than economics, that's because Paganelli has taken a page from the other discipline to design and tweak laboratory tests of economic behavior, such as whether commerce has an effect on trust. Some of the methods used in her experiments parallel those used in psychology, she said. The lab is located at George Mason University and Paganelli's involvement focuses on providing the theoretical framework, designing the experiments, and interpreting the data.

 She draws upon the 18th century work of trailblazer economists Adam Smith and David Hume, who looked at how self-interest functions as a motivational force in understanding whether commerce affects human behavior. Smith is of interest since he was trained more broadly as a professor of moral philosophy with an interest in law and was able to formulate a more complete picture of human behavior than most economists do today.

With a political science background in Italy, Paganelli wanted to come to the United States to attend graduate school to prepare for a career as a diplomat. While writing her master's thesis on the evolution of law en route to an international relations degree, she became intrigued by the evolution of money.  "We cannot say who created money. There were many interactions over time. Money evolved," she said. Hooked by these topics, she instead came to this country to study economics.

 From there, it was not a big leap to develop an interest in the history of banking in Iceland, a small country with its own currency and, until recently, under strict protectionism. A few years ago, trade barriers were lifted, banks privatized, and Iceland was considered an economic miracle, Paganelli said. But in 2008, the country and its banking system collapsed. Now, it is recovering surprisingly well, compared to other countries with similar problems, such as Ireland. A remaining issue is the question of fishing rights to guard against overfishing. "It poses the question that economists call 'the public good problem' to discover who can buy and sell the rights to fish," she said. She joined forces with geosciences professors Diane Smith and Leslie F. Bleamaster to develop an interdisciplinary study trip for Trinity students to Iceland to visit with representatives of the banking and fishing industries as well as government officials to gain a first-hand perspective on the issues and possible solutions. The course will be offered in the spring of 2014.

Courses Taught

Principles of Microeconomics

Economic Analysis of the Law

History of Economic Thought 

Selected Publications

"The Same Face of the Two Smiths: Adam Smith and Vernon Smith." Journal of Economic Behavior and Organization. 2011. 78: 246-255.

"The Moralizing Role of Distance in Adam Smith: The Theory of Moral Sentiments as Possible Praise of Commerce." History of Political Economy. 2010. 42.3: 425-441.

"Commercial Relations: from Adam Smith to Field Experiments" in The Oxford Handbook of Adam Smith. Christopher Berry, Maria Pia Paganelli, and Craig Smith (Eds.) Oxford University Press. (Forthcoming in 2013.)

"The causal effort of market participation on trust: An experimental investigation using randomized control" with Omar Al-Ubaydli, Daniel Houser, John Nye, and Xiaofei (Sophia) Pan. Public Library of Science. (Forthcoming in 2013.)

-- Susie P. Gonzalez