The Answer Is Transaction Costs

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The Answer Is Transaction Costs

Michael Munger

70 episodes

3 days ago

Send us a text Smith closes Book IV by dismantling mercantilism through the lens of colonial policy, monopoly, and rent seeking, then weighs physiocracy against the system of natural liberty. We trace why colonies grew despite Europe, not because of it, and how “wealth as money” broke policy and fueled war. • mercantilism’s definition of wealth and the balance of trade myth • monopoly and bounties as tools for concentrated gains • chapter 7 on colonies as a case study in institutional design...

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Social Sciences

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Send us a text Smith closes Book IV by dismantling mercantilism through the lens of colonial policy, monopoly, and rent seeking, then weighs physiocracy against the system of natural liberty. We trace why colonies grew despite Europe, not because of it, and how “wealth as money” broke policy and fueled war. • mercantilism’s definition of wealth and the balance of trade myth • monopoly and bounties as tools for concentrated gains • chapter 7 on colonies as a case study in institutional design...

Show more...

Social Sciences

Episodes (20/70)

The Answer Is Transaction Costs

Adam Smith Episode 8: A Nation of Shopkeepers

Send us a text Smith closes Book IV by dismantling mercantilism through the lens of colonial policy, monopoly, and rent seeking, then weighs physiocracy against the system of natural liberty. We trace why colonies grew despite Europe, not because of it, and how “wealth as money” broke policy and fueled war. • mercantilism’s definition of wealth and the balance of trade myth • monopoly and bounties as tools for concentrated gains • chapter 7 on colonies as a case study in institutional design...

1 week ago

1 hour 25 minutes

The Answer Is Transaction Costs

Parts is (Not) Parts: The Life Cycle Problem for Heavy Equipment

Send us a text We trace how Ales Schuessler, the once and once-again President of SmartEquip--also a scholar of expressive choice!--built a platform that makes machines more profitable by erasing the friction between parts, service, and uptime. The rental economy, Japan’s utilization model, and IoT diagnostics reveal why transaction costs, not price tags, decide who should own and who should rent. • rental vs sharing and why property rights matter • how serial-number specific data kills erro...

2 weeks ago

1 hour 3 minutes

The Answer Is Transaction Costs

Money Killed Barter; Can a Platform Bring It Back?

Send us a text We explore why money became the default middleman and how a modern platform can make barter practical by slashing the costs of search, matching, and trust. Founder Jassim Baqer shares the story behind Tbadel, what people actually trade, and how reputation, bundling, and scale (might) make swaps work. • Adam Smith’s "double coincidence of wants" problem and transaction costs • Platforms as connection engines that lower search and matching costs • Tabottle’s origin, goals and na...

4 weeks ago

48 minutes

The Answer Is Transaction Costs

Adam Smith Episode 7: The Errors of Mercantilism--Bullion, Balances, and Bounties

Send us a text Tracing out Adam Smith’s Book IV, chapters 1–6, to show how mercantilism mistakes money for wealth, how protection creates monopolies at home, and why free exchange raises real prosperity. Smith defends two narrow exceptions—defense and tax parity—while rejecting bounties and politicized treaties that entangle trade with war. • mercantile vs physiocratic systems and their influence • wealth as goods and industry, not specie • balance of trade as a “pestilent error” • make-or-b...

1 month ago

1 hour 15 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations Episode 6--Division of Land

Send us a text We trace how Adam Smith solves a historical puzzle: why Europe’s path to prosperity inverted the “natural order,” and how commerce quietly dissolved feudal power to make room for liberty. The story follows incentives, from primogeniture and entail to charters, free towns, and the market’s “silent and insensible” revolution. institutions as congealed preferences and elite incentiveswhy Smith’s natural order inverts in Europethe physiocrats’ growth model and Smith’s critiqueSol...

2 months ago

1 hour 16 minutes

The Answer Is Transaction Costs

Little's Law: The Transaction Costs of (Re)Drawing Lines

Send us a text A conversation with Andrew Wagner, production and manufacturing engineer, now in aerospace, but with experience also in the auto industry. We trace how transaction costs shape production, from Adam Smith’s pin factory to Toyota’s SMED, and why empowering workers and redesigning tools can raise quality while cutting cost. An aerospace manufacturing engineer joins us to unpack Little’s Law, line reconfiguration, and the culture that makes flexibility real. • division of labor li...

2 months ago

55 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations: Episode 5--The Text of Book II

Send us a text This episode explores Book 2 of Adam Smith's Wealth of Nations, focusing on his revolutionary concept of the "division of stock" and how capital accumulation drives economic growth. • Smith distinguishes between fixed capital (machines, buildings, land improvements) and circulating capital (money, goods in transit) • Money is described as "the great wheel of circulation" – necessary but not productive in itself • Banking allows society to economize on expensive metallic curren...

3 months ago

1 hour 16 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations: Episode 4--Capital and Book II: Introduction

Send us a text Book Two of Adam Smith's "The Wealth of Nations" provides the conceptual foundation for understanding how commercial society sustains growth through capital accumulation and the employment of stock. Smith challenges common misconceptions about wealth creation and offers profound insights on the role of capital in economic development. • Capital is not capitalism – Smith wrote before "capitalism" was invented, using the term "stock" to describe accumulated resources • Division ...

3 months ago

54 minutes

The Answer Is Transaction Costs

The Innovation is the Exchange Itself!

Send us a text Chris Cornette, a longtime securities trader who grew up in the business, reveals how the most important innovation that made US capital markets preeminent in the world was the exchange itself. • Cornette's father worked in the P&S (Purchase and Sales) department on Wall Street, eventually becoming the controller of an American Stock Exchange specialist unit • The original Buttonwood Agreement from 1792 created exclusivity among traders that helped establish trust in the m...

3 months ago

1 hour 8 minutes

The Answer Is Transaction Costs

When Bribes Become the System: Understanding Lock-In

Send us a text Corruption persists not because people like it, but because it becomes embedded in the incentive structure of the state, creating feedback loops that reinforce themselves and resist reform. • A prebend is a type of benefice historically given to clergymen, now a useful concept for understanding corruption in developing nations • Douglas North extended Coase's concept of transaction costs to explain why institutions matter in economics and politics • Bad institutions crea...

4 months ago

25 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations: Episode #3--Introduction and Book I

Send us a text Adam Smith's "The Wealth of Nations" developed from decades of lectures on jurisprudence, examining how market exchange creates prosperity through division of labor and specialized skills. • Two core observations drive Smith's thinking: humans seek approval from others and have a propensity to "truck, barter and exchange" • Exchange is Smith's key concept—not just for goods but for ideas, sentiments and social coordination • Division of labor dramatically increases productivit...

4 months ago

1 hour 21 minutes

The Answer Is Transaction Costs

Second Place Is The First Loser: Strategy Over Speed

Send us a text The ancient tradition of Il Palio in Siena showcases a complex system of strategic corruption, neighborhood rivalries, and high-stakes horse racing that has endured for centuries. This 90-second race around Siena's central piazza involves extensive bribery, intense negotiations, and centuries-old vendettas that make speed secondary to political maneuvering. • Horse assignments determined by lottery prevent wealthy neighborhoods from buying fastest horses but create opportuniti...

4 months ago

42 minutes

The Answer Is Transaction Costs

When Bats Attack: Understanding Insurance

Send us a text Mike Munger explores insurance economics through the lens of transaction costs and risk management, culminating in an amusing case study about "bat-in-mouth disease." Insurance transfers risk from individuals to larger pools, reducing the expected variance of outcomesThe fair price of insurance equals expected value (probability × potential loss) plus transaction costsInformation asymmetry, subjective risk valuation, and strategic behavior complicate insurance marketsInsuranc...

5 months ago

35 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations: Episode #2--The "Model"

Send us a text Transaction costs provide the key to understanding Adam Smith's complete philosophical system and how his two great works form an integrated whole. • Smith's two essential claims: humans desire to learn proper behavior and have an innate propensity to truck, barter, and exchange • Sympathy in Smith's view means synchronizing feelings with others—not perfect emotional matching but sufficient "concords" for social harmony • Three core principles guide proper behavior: just...

5 months ago

57 minutes

The Answer Is Transaction Costs

Adam Smith's Wealth of Nations: Episode 1 (Background)

Send us a text (N.B.: This episode is cross-posted at our partner site, Adam Smith Works. There are lots of resources and background material there, if you want to delve deeper) The Scottish Enlightenment emerged as a remarkable intellectual movement that shaped modern economics, philosophy, and social science, with Adam Smith at its center developing a dual theory of human nature through his two masterworks. • Scottish Presbyterian education fostered literacy and critical inquiry desp...

5 months ago

57 minutes

The Answer Is Transaction Costs

Nnnnooooo one expects transaction costs!! The economics of Monty Python

Send us a text Mike Munger explores how Monty Python brilliantly illustrated transaction cost economics through their legendary comedy sketches. The British comedy troupe's most famous routines provide perfect, hilarious examples of the frictions that make economic interactions costly and complicated in the real world. • Three definitions of transaction costs from Ronald Coase, Douglas North, and Oliver Williamson • The Dead Parrot sketch as an illustration of ex-post recontracting problems ...

5 months ago

16 minutes

The Answer Is Transaction Costs

The Engineers of Exchange: Middlemen, Part Deux

Send us a text Middlemen are not parasites but essential "engineers of exchange" who create value by connecting buyers and sellers who might never find each other otherwise. • The word "monger" (and Munger) comes from a Saxon root--Mancgere-- meaning trader or merchant • Middlemen historically seen as parasites for buying cheap and selling dear without improving products • 11th-century "mancgere" traders defended their value despite not changing the goods they sold • RA Radford's 1945 POW ca...

6 months ago

16 minutes

The Answer Is Transaction Costs

FA Hayek: Price Whisperer

Send us a text The price system solves a profound coordination problem by communicating dispersed knowledge that no central planner could ever fully access or comprehend. We explore Hayek's insight about how prices serve as both information and incentives, allowing self-interested actions to inadvertently benefit society. • The "knowledge problem" – why information needed for economic decisions is dispersed among millions of individuals • Tale of two farmers – how profit-seeking Mo unknowing...

6 months ago

18 minutes

The Answer Is Transaction Costs

The Price of Pennies: Make or Buy?

Send us a text The make-or-buy decision is a fundamental aspect of economics that applies to businesses, households, and nations, with the U.S. penny providing a fascinating case study in economic inefficiency. • It costs 2.72 cents to manufacture one penny, representing a loss of 1.7 cents per coin to taxpayers • The U.S. Treasury loses between $85-120 million annually due to penny production costs • There are approximately 130 billion pennies in existence, but only 5-10% actively circulate...

6 months ago

19 minutes

The Answer Is Transaction Costs

Pretty Pigs and Talking Dogs

Send us a text How should we decide which political-economic systems are best for organizing society? Let's peer through the lens of the "Pretty Pig Problem," which highlights the flaws in comparing the actual implementation of systems we dislike with idealized versions of systems we prefer. The PPP shows that we must compare real-world options rather than theoretical ideals. Some details: • Only three social systems are viable at scale: authoritarianism, capitalism, and democratic so...

6 months ago

11 minutes