Faith, Contracts And Civlization

The problems of lack of Faith in Chinese market economy have already caused great attentions. Social scientists from different fields have been researching the problems and have gotten different conclusions. Based on the paradigm of contract economics, Faith, which means keeping a promise or carrying out a contract, is a positive concept, that is, it isn't borne with moral or value meanings. A Faith contains an essential ingredient: a promise, which means postponed payment and is represented by an agreement, an oral promise or a business convention. If the promise hasn't been kept, the Faith is broken. In modern market economy, the factor of postponed payment exists in every spot-transaction as well as delivery-transaction, so Faith exists in every market transaction.In a market transaction, the promise is not a unilateral behavior. It is a relation of right and obligation of"debt"for both sides, which is caused by postponed payment. This relation is just the Faith relation. It is a relation of property right transferring which is that of contract for both sides. So a Faith relation is a contract relation. It is quite different from the traditional ones.So we need to research the Faith in market economy from the angle of contract. Firstly, a contract is a legal concept, which is an agreement adhered with a"debt". A valid contract should accord with principles of contract-freedom and contract- justice. The economic concept of contract is derived from that of law, but has more connotations, that is, it includes implicit contracts as well as explicit contracts.With the hypothesis of Economic Man and with the tool of game theory, it can be proved that because of the problem of Faith, a single transaction can't be carried out when there is no the third party. The conclusion also illuminates the necessity of intervention of the third party, such as law and institutions. In spite of this, if the transaction will be carried out for many times, the restricting mechanism which is generated from the repeated game will make the player keep his Faith for a long time. Through social credit system, every player can be changed into a single long-run player of repeated game and their behaviors of Faith-broken will validly be restricted. In real world, the problem of Faith exists in the principal-agent relation because of asymmetric information. If asymmetric information is ex ante, it might lead to transaction failure. Even if the transaction is carried out, it may decrease the efficiency of the total economy because of adverse selection. So it is necessary for the third party to intervene. Besides that, screening of information and signaling are also alternatives for the problem. If asymmetric information is ex post, it will generate the problem of moral hazard, and incentive is the basic method of solving the problem. Because of limited rationality, exchange cost and time span, most contracts are incomplete and make the problem of implementation of contracts especially complicated.Based on the analyses on the mechanism of Faith in market economy, we can research the relation of Faith and institutions from the angles of property rights, law, social credit system, incentive and informal institutions. Efficacious institutions of property rights can certainly restrict the behaviors of Faith-broken. But the institution of initial property rights has special significance. Its definitude and the freedom and equity of the owner of property are the premises of modern Faith relations. Because of the complexity of modern market economy, the relations of Faith and the institutions of property rights become very complicated. As to the relation of Faith and law, law is the base of modern Faith relations. Law is incarnated not only by the establishment of legal institutions, but also by the valid legal practices. In a soft-regime society in which there is no law actually, there is no modern Faith relation. Because the intervention of law causes cost, it is necessary to do cost-revenue analyses of law, and so, the self-rule intermediary organizations or industry associations become alternatives. Social credit system makes modern society no longer anonymous, and makes the restricting mechanism of repeated game become effective. It is also help to solve the problem of asymmetric information. Social credit system includes credit checking and credit rating system, but how to establish Chinese credit checking and credit rating system is still a problem need to be researched. Incentive contracts can spur agents to work hard, and different incentive contracts can be used for different situations. Informal institutions have both positive and negative effects for modern Faith relation, so it is necessary to research every single case in order to get correct answers.Modern Faith relation is closely related with freedom, Good Faith and trust. Under the background of utilitarianism, modern economics only endows freedom with tool value. But for modern Faith relation, freedom has interior value. It is the most important premise for the principle of contract freedom. The classical principle of contract-freedom originated on the general base of development of classical capitalism. It is the result of interactions of factors of classical society, economy, politics and general ideology. As to Good Faith, there has been a controversy between utilitarianism and deontology. According to utilitarianism, a person wouldn't keep faith from his innermost, so Good Faith has only tool value. But according to deontology, Good Faith is one of a person's inner characteristics. Whatever it is, institution restrictions are absolutely necessary. As to trust, it contains a belief of altruism, so it is a synthesis of rationality and irrationality. Trust can help to establishment of modern Faith relation, but complete trust may not be a good thing. In modern market economy, it is most important to establish institution-trust. Based on the paradigm of modern economics, whether moral or trust, which is one of a person's social characteristics, is irrational. So we need to introduce the concept of social capital to represent such things. Social capital represents the sum of every person's"good"characteristics in a society. It is a special type of common resources and need to be ensured by powerful institutions.In modern market economy, because the government is borne with a lot of functions of administration, Government Faith becomes the base of modern Faith. According to the theory of social contract, modern government is an organization which is separated from the society and executes common-rights. The relation between the people and the government is the political principal-agent relation for the common rights. It is a special principal-agent relation and has more uncertainty and great risk, so the problems of Government Faith need to be researched. By introducing the theory of public selection, we can say that Government Faith- broken is not other than government failure, include the failure of government behavior and government mechanism and the failure of politics and law. The main causes which lead to Government Faith-broken includes: (1) the government's goals are different from that of the people; (2) the government has limited power and ability; (3) the democracy has some fault. So, the problems of Government Faith-broken can be solved thorough reducing government functions and perfecting democracy. As to perfecting democracy, the dual structure of society- political state is the premise of solving the problems of Government Faith-broken, and restricting government rights from the government itself and from social intermediary organizations is the basic method.From the angle of civilization, the contract civilization, which rooted in that of ancient Greece and Rome and developed in times of classical capitalism, is the general base for modern Faith society. The traditional Chinese society, which based on agriculture, patriarchal clan system and Confucianism, was a typical status society. It is impossible to develop contract civilization in such a society.During the time of transformation of Chinese society, the lack of Faith appears in a lot of different fields, and the causes are complicated. In order to construct modern Faith society, it is necessary for Chinese society to change into contract society and to construct the dual structure of society- political state. It is actually a transformation of civilization, and the course would be long, difficult and complicated.The possible important achievements in the dissertation include:(1) Basing on the paradigm of contract economics and using cross-subject method, the dissertation researches the basic theory of Faith and then provides a framework for further research.(2) Modern Faith relation is the relation of property rights, and so, it results in the contract relation. Based on the conclusion, we can differentiate modern Faith from traditional Faith.(3) The dissertation tries introducing the concept of social capital into modern economics in order that we can research irrationality, such as moral and trust, in the field of modern economics.(4) The dissertation researches the problem of Faith on the level of civilization, so we can understand that it is a long-run, difficult and complicated task for Chinese society to solve its problem of lack of Faith.