I operate under no illusion that the local farmer’s market is automagically more trustworthy somehow than WalMart or Safeway.

This is correct. The little guy is not more trustworthy than the people in a large institution. BUT, and this is the key, it is much easier to check out the little guy.

Several years ago I bought some cheese at a big (by CR standards) supermarket. The cheese was bad so I returned it. They gave me a credit and someone walked off with the bad cheese. The next day I was there again and I saw the exact same package back in the cheese section. This was a coincidence, under normal circumstances I would not have caught that. Under normal circumstance I would simply have to assume that the company’s internal procedures were good and that the people who worked there actually followed them.

OTOH, also a while ago, some of the milk I bought from the local farmer was a bit off. I took it back, the woman smelled it and poured it down the drain.

Does this mean the farmer will never rip off a customer? No, but it does indicate that they are much more likely to get caught. Therefore they are much more likely to act correctly.

When dealing with an institution, we are placing our trust in the system. If the system is a real free market, then we are pretty safe, if it is the quasi-free, mostly controlled mish-mash that we have today, significantly less so.

When deal with individuals we are placing our trust in them. This trust is easy to manage and revoke if necessary.