Hostile Territory: High-Tension Religion and the Jewish Peddler

I Introduction THROUGHOUT THE HISTORY OF EXCHANGE, individuals have grappled with the trust issues Akerlof illuminated so eloquently in his paper "The Market for Lemons: Quality, Uncertainty and the Market Mechanism" (1970: 500). He observed: "Informal written guarantees are preconditions for trade and production. Where these guarantees are indefinite, business will suffer." Entrepreneurs in the secular world have found a number of ways to reduce the transactions costs associated with these issues, to wit: warranties, businesses such as credit bureaus and http://CARFAX.com, even the lowly private investigator. However, the institution of religion has long served as a valuable way to reduce these very costs. Existing theories examine how religious networks reduce transactions costs by providing mechanisms that strengthen or allow trust or provide for community-based enforcement of agreements. This article adds to this body of research by exploring the contribution hostility makes to economic arrangements involving a despised religious minority. Prior theory, when it has considered hostility at all, has looked upon it as an exogenous force that leads to group solidarity (Bonacich 1973). However, while hostility may have arisen initially as an exogenous force, it becomes endogenous as groups seek to protect themselves from abuse. As a group cultivates intergroup relations, benefits, sometimes in the form of increased economic opportunity, arise and contribute to the desire of such groups to maintain a separation from the majority population. In a type of spiraling feedback loop, this separation supports an increase in exogenous hostility. Beginning with the background of current theory in Section II, I introduce in Section III the idea that hostility toward a religious minority can serve a valuable function in that it enhances the effectiveness of trust networks and provides for an improved enforcement mechanism. Section IV illustrates the theory in a case study of German Jewish peddlers in the 19th-century United States. II Existing Theory DAN KLEIN DISCUSSES the use of reputation as a means of resolving the asymmetric information problem in society (Shearmur and Klein 1997). The reputation mechanism appears to be quite efficient as long as groups are small. In small groups, everyone can know everyone else, and each can know how the others have acted in a variety of past transactions. If an individual has cheated or failed to uphold his end of a bargain, word gets around through an informal network of friends and acquaintances. But as a society grows larger and more diverse, anonymity mutes the effect of social enforcement. Smith proposed that religious groups in big cities, by providing a societal enforcement mechanism, can replace the trust networks inherent in small societies where all community members know each other (Smith 1976). Weber expands upon this idea, illustrating the power of religious associations in attaining favored business status (Weber 1930). Indeed, the idea that religious affiliation can operate as an information signal is well established, and it continues to serve in this capacity today (Paxson 2004). Avner Greif discusses the role reputation plays in enforcement of agreements in his article on 11th-century Maghribi traders (Greif 1993). He discusses a system by which merchants form a coalition that serves as both an informational conduit and an enforcement mechanism in an area of commerce where legal systems fail to adequately address any breach of contract. While the group he discusses share religious and familial ties, Greif does not attach importance to these elements. Because of the reputation aspect and the fear of expulsion from a group, religious affiliation provides for strong trust networks. (1) Strict religions in particular are quite powerful in this regard. Because they demand particular unique behaviors, such as abstinence from certain social activities, unusual and defining dress, restricted eating habits, and so forth, strict religions are able to ensure that members are truly devoted and 'dedicated to the group (Iannaccone 1992, 1994). …