The Answer Is Transaction Costs – Détails, épisodes et analyse

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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 name meaning exchange in Arabic
• How offers, counteroffers and bundles enable fair value without prices
• Building trust with profiles, ratings, in‑app messaging and reporting
• Local meetups versus future delivery options to cut transfer costs
• Why density and subcommunities unlock multi‑party and chain trades
• What trades dominate now: books, electronics, kids’ gear and services
• AI matching, alerts and global exchange as the growth roadmap
• Two‑sided market dynamics and the path to scale

Tbadel Web Site

Jassim Baqer on LinkedIn

From JJ's letter: Photos of "Parklet" in San Francisco.

You can follow Mike Munger on Twitter at @mungowitz 

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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-buy logic and misallocation from tariffs
• invisible hand clarified and limited
• natural vs acquired advantages in specialization
• two exceptions: national defense and tax parity on imports
• drawbacks as refunds vs bounties as subsidies
• corn bounties, higher home prices, cheaper foreign prices
• specie hoards as dams that inevitably overflow
• treaties of commerce, Methuen example, political risk
• case for unilateral free trade over reciprocity

Mentioned in the podcast:

• Laura Williams on Pineapples
• Pineapples in Sweden
• Oren Cass on Adam Smith
• Dan Klein's Law and Liberty piece on Oren Cass on Adam Smith

You can follow Mike Munger on Twitter at @mungowitz 

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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 outcomes
• The fair price of insurance equals expected value (probability × potential loss) plus transaction costs
• Information asymmetry, subjective risk valuation, and strategic behavior complicate insurance markets
• Insurance faces two major challenges: adverse selection (who buys insurance) and moral hazard (behavior changes after getting insurance)
• Deductibles and co-pays help align incentives between insurers and insured
• Insurance history dates back 5,000 years to ancient China, Mesopotamia, Greece, and Rome
• The "bat-in-mouth disease" case study shows what happens when someone tries to purchase insurance after an incident
• Transaction costs explain why dogs sometimes stop climbing stairs and why freezing credit cards--ie, transaction costs--might prevent impulse spending. The piano player in a brothel story, and its history.
• The book o'da'month is Daniel Flynn, The Man Who Invented Conservatism. 

Bat in mouth story:  https://www.nbcnews.com/news/us-news/bat-flies-womans-mouth-arizona-costing-nearly-21000-medical-bills-rcna222463

Some background on insurance:

• Kenneth Arrow on the Uncertainty & Welfare Economics of Medical Care
• Anja Shortland on Kidnap: Inside the Ransom Business

"Piano player in a brothel" story origins:

• https://www.goodreads.com/quotes/93559-my-choice-early-in-life-was-either-to-be-a
• https://barrypopik.com/blog/dont_tell_my_mother_im_a_banker_she_thinks_i_play_piano_in_a_whorehouse 

Daniel Flynn book:  The Man Who Invented Conservatism

You can follow Mike Munger on Twitter at @mungowitz 

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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: justice (respecting others' person, property, and promises), beneficence (proper use of what's ours), and prudence (sacrificing present comfort for future well-being)
• Self-command turns virtuous intentions into actual proper behavior
• Four sources of moral judgment: motive, reaction, convention, and consequence
• As societies scale up, we move from moral community (acting from love) to moral order (following rules from their utility)
• Smith's "Chinese earthquake" example anticipates the modern trolley problem by revealing how moral agency affects our decisions
• The "man of system" tries to impose ideal plans without regard for human nature or gradual change
• Smith's egalitarian views positioned economics against slavery and hierarchical social structures

Also posted, with resources for teaching and learning, at Adam Smith Works, thanks to Amy Willis. 

You can follow Mike Munger on Twitter at @mungowitz 

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(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 despite doctrinal rigidity
• The 1707 Act of Union created unique conditions where Scots pursued intellectual achievement rather than political power
• Scottish universities thrived through student-funded education while Oxford professors "gave up even the pretense of teaching"
• Thinkers like David Hume, Francis Hutchison, and Thomas Reid established key intellectual foundations
• Smith's concept of sympathy involves synchronizing sentiments with others, not just feeling pity
• Justice protects "person, property and promise" as the foundation of social order
• Beneficence is "the ornament" of society while justice is essential to its existence
• Smith was strongly anti-slavery, describing enslaved Africans as "nations of heroes" superior to their captors
• The Theory of Moral Sentiments and Wealth of Nations form a unified system, not contradictory works
• Commercial society requires both moral foundations and economic understanding to function properly

For the complete series on Adam Smith's Wealth of Nations and additional resources, you can also visit Liberty Fund's Adam Smith Works website.  For the material on this episode, go here. 

APPENDIX:

To reduce transaction costs, here is substantial amount, probably more than you want, of primary and secondary material on Smith and WoN.  Enjoy!

Primary Smith Sources From Liberty Fund

 1.      The Theory of Moral Sentiments (1759/1790). Edited by D. D. Raphael & A. L. Macfie (Indianapolis: Liberty Fund, 1982)
 https://oll.libertyfund.org/titles/theory-of-moral-sentiments-and-essays-on-philosophical-subjects 

 2.      An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Edited by Edwin Cannan (Indianapolis: Liberty Fund, original editions 1904, in two vols.): https://oll.libertyfund.org/titles/smith-an-inquiry-into-the-nature-and-causes-of-the-wealth-of-nations-cannan-ed-in-2-vols 

 3.      Lectures on Astronomy (c. 1748).  Essays on Philosophical Subjects (1795), which contains Smith’s “History of Astronomy”—based on his lectures.
  https://oll.libertyfund.org/titles/theory-of-moral-sentiments-and-essays-on-philosophical-subjects

 General Resources

 1.      Aristotle. (n.d.). Nicomachean ethics. (Jowett translation) https://www.gutenberg.org/files/8438/8438-h/8438-h.htm 

 2.      Carlyle, T. (1849). Occasional discourse on the negro question. Fraser's Magazine. https://cruel.org/econthought/texts/carlyle/carlodnq.html

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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 and contract enforcement
• Ministry of Silly Walks demonstrating how inefficient institutions persist due to high reform costs
• The Argument Clinic depicting problems with contract scope and definition
• Monty Python and the Holy Grail showing barriers to entry and communication costs
• Spanish Inquisition sketch revealing coordination failures

The five MP sketches mentioned here:

• Dead Parrot Sketch:  https://youtu.be/4vuW6tQ0218?si=hHfu07sgQeCgxUxx 
• Ministry of Silly Walks:  https://youtu.be/iV2ViNJFZC8?si=U5QxzDeYXeT3UhIq 
• Argument Clinic:  https://youtu.be/uLlv_aZjHXc?si=aU14dFjwnJeDvRf7 
• Holy Grail—Anarcho-Syndicalist Peasant:  https://youtu.be/_EMZ1u__LUc?si=C9z8e4NAQDRkU8q7 
• Spanish Inquisition:  https://www.youtube.com/watch?v=D5Df191WJ3o   

Letter:  Swiss Air's efficient window-seat-first boarding policy

Book'o'da'week: To Overthrow the World: The Rise and Fall and Rise of Communism, by Sean McMeekin

Next episode releases July 22nd, beginning the co-produced series on Adam Smith's "Wealth of Nations" with an overview of the Scottish Enlightenment.

You can follow Mike Munger on Twitter at @mungowitz 

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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 camp study shows how middlemen increase beneficial exchanges
• The prison camp padre who traded his way to wealth, while making everyone else better off!!
• Arbitrage improves market efficiency by exploiting price differences, and reducing differences in price so that people can rely on the price they are offered rather than having to bargain or comparison shop. 
• Middlemen only become problematic when they control exclusive information or "rents"

The first "middleman" episode of TAITC:  May 2023....

R.A. Radford, "The Economics of a POW Camp." 

M.C. Munger, "Market Makers or Parasites."

Book'o'da'week: Country Music USA by Bill C. Malone, published by University of Texas Press.

Bonus: a great example of a middleman, from a listener in Oz!

You can follow Mike Munger on Twitter at @mungowitz 

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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 unknowingly serves society better than altruistic Al
• Markets generate information through commercial processes that otherwise wouldn't exist
• Goodhart's Law – when measures become targets, they cease to be good measures
• Soviet planning failures – absurd outcomes like factories producing single giant nails to meet weight quotas
• Recycling pennies – potential approaches as the US phases out penny production

Mentioned in the podcast:

• FA Hayek, "Use of Knowledge in Society" (AER, 1945) 
• Michael Munger, Socialist Generation Debate
• "Goodhart's Law"
• "What Do Prices Know That You Don't?"

Ross Kaminsky, of KOA:

• iHeart Radio
• Segments with Ross
• Ross on X (@rossputin)

My Duke colleague Bruce Caldwell, on the intellectual history of Hayek's 1945 AER paper

Book'o'da'week! Three suggestions (but mostly Red Plenty!)

• Paul Craig Roberts' "Alienation and the Soviet Economy" 
• Alec Nove's "The Economics of Feasible Socialism"
• Francis Spufford's "Red Plenty"

You can follow Mike Munger on Twitter at @mungowitz 

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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
• Most pennies end up sitting idle in jars, drawers, and coin collections after minimal use
• Arguments against pennies include production costs, inflation reducing value, transaction inefficiency, and environmental impact
• Canada successfully eliminated the penny in 2012, rounding cash transactions to the nearest five cents
• A potential alternative: buying back existing pennies at a price below manufacturing cost
• The Federal Reserve could implement a system paying $1.50 for 100 pennies, still saving over the $2.72 production cost
• This system would utilize the billions of idle pennies while maintaining the existing distribution infrastructure

Grass seed:  Expensive!

Book'o'da'week: Abortion, Baseball, and Weed 

Join us next week on Tuesday, July 1st for a new episode with a fresh topic, letters from listeners, and of course, a hilarious new TWEJ.

You can follow Mike Munger on Twitter at @mungowitz 

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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 socialism
• Every system has both an ideal form and a corrupted form that must be considered
• The "Pretty Pig Problem" highlights our tendency to unfairly compare real systems to idealized alternatives
• People on the left note market problems and conclude state intervention is necessary without examining real state actions
• People on the right highlight state problems and assume markets are better without considering actual market performance

And....TWEJ!  And Book'o'da'week!

Listen next Tuesday, June 24th, for a new episode of Tidy C with a new topic, letters, and another hilarious TWEJ.

LINKS:

• Peter Boettke on EconTalk and a "Living Economics"
• Brooks' Law of Software Engineering

You can follow Mike Munger on Twitter at @mungowitz