The Answer Is Transaction Costs
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- 27. Okt. 2026
Über den Podcast
"The real price of everything is the toil and trouble of acquiring it." -Adam Smith (WoN, Bk I, Chapter 5)
In which the Knower of Important Things shows how transaction costs explain literally everything. Plus TWEJ, and answers to letters.
If YOU have questions, submit them to our email at [email protected]
There are two kinds of episodes here:
1. For the most part, episodes June-August are weekly, short (<20 mins), and address a few topics.
2. Episodes September-May are longer (1 hour), and monthly, with an interview with a guest.
Finally, a quick note: This podcast is NOT for Stacy Hockett. He wanted you to know that.....
Folgen 89
Bookmakers Set Odds To Maximize Profit Not Balance Bets
Send us Fan MailA NOTE OF APOLOGY: I uploaded the raw audio, rather than the podcast. So the first of you who listened heard the raw version, where there was some random stuff at the beginning. Sorry to waste …
Shownotes
A NOTE OF APOLOGY: I uploaded the raw audio, rather than the podcast. So the first of you who listened heard the raw version, where there was some random stuff at the beginning. Sorry to waste your time! Fixed now.
We talk with economist Karl Whelan about how sportsbooks actually set odds, why the “balanced book” story falls apart, and how modern betting products are engineered to raise margins. We also trace how regulation, transaction costs, and prediction markets like Kalshi are reshaping sports gambling in the US and abroad.
• Karl’s path from macroeconomics and central banking to sports betting research and writing
• COVID soccer without crowds as a natural experiment on home advantage and bookmaker pricing
• gambling morality through freedom, addiction risk, and second-order preferences
• why bans fail and why targeted friction and consumer protection can work better
• gambling versus investing and where derivatives and event contracts fit
• UK legalization, US prohibition history, PASPA, and the post-2018 state-by-state scramble
• why US markets often lack price competition and how lobbying and licensing shape outcomes
• what a sportsbook is and why firms price for profit not for perfectly balanced action
• how minus 110 differs from moneylines, prop bets, parlays, and in-play betting margins
• sharp bettors, profiling, limits, and the transaction costs of trying to beat legal books
• prediction markets, betting exchanges, liquidity, interface design, and why most demand is still sports
• Kalshi, the CFTC, politics and sports contracts, and the state rights conflict heading toward courtGuest: Prof. Karl Whelan's home page at UC Dublin
Resources:
- TAITC with Kevin Braig
- Kevin Braig's book, Bookmakers vs. Ballowners
- What is Kalshi? A Beginner's Guide
- Are you a "sharp"? If you have to ask, likely no. Some background
- Professional and Amateur Sports Protection Act (PASPA, 1992)
The Worst Bad Beat:
- NFL explains ruling at end of Chargers-Steelers game (NFL.com)
- Referee says officials errantly voided Steelers TD (AP via Patriots.com)
- Scoring mistake in Steelers-Chargers game costs some bettors big (AP via Honolulu Advertiser)
- Steelers beat Chargers in NFL's first 11-10 game (HeraldNet)
- Sorry Gamblers: Official Blew Final Call (NBC San Diego / FanHouse)
Book o'da Month: Fine Margins, by Karl Whelan
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Renta Vitalicias: Pension Promises Only Work When Politics Honors Them
Send us Fan MailWe walk through how Chile converts retirement savings into lifelong income and why inflation protection and competition make the design work. Then politics collides with contract law as …
Shownotes
We walk through how Chile converts retirement savings into lifelong income and why inflation protection and competition make the design work. Then politics collides with contract law as COVID-era withdrawals test credible commitment and raise transaction costs across the financial system.
• how AFP accounts build national savings and deep capital markets
• why a pension is more than a savings account, especially under longevity risk
• how the renta vitalicia life annuity works and why it is irrevocable
• what the UF inflation-indexed unit of account does for long-term contracts
• programmed withdrawal versus annuities, including inheritance and market exposure
• how the 2004 electronic quotation system reduces shopping costs and corruption
• how 2019 unrest and COVID pressures drive the 10% retiro laws
• why the third retiro for annuitants functions like breaking a sold contract
• what “credible commitment” means for pensions, insurers, and bond markets
• how the 2025 reform and a court ruling help restore trust
• economics jokes, a listener letter on data center side payments, and the book pick
Links:
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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God Speaks Hebrew But Understands Yiddish
Send us Fan MailWe trace how Hebrew goes from a “museum language” to a living vernacular by treating language as a coordination good with huge network effects and real transaction costs. We follow Eliezer …
Shownotes
We trace how Hebrew goes from a “museum language” to a living vernacular by treating language as a coordination good with huge network effects and real transaction costs. We follow Eliezer Ben-Yehuda’s strategy for lowering those costs, then watch the Technion language fight prove Hebrew can carry science, not just prayer.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• Hebrew’s revival as a rare case of full language reboot at scale
• Jewish linguistic diversity and why German, French, Russian, Polish, and Yiddish create coordination barriers
• Spoken language as a network effect and why “no one wants to go first”
• Inframarginality and Ben-Yehuda providing a public good as a private mission
• Hebrew as a neutral focal point that no faction fully “owns”
• Building missing vocabulary through roots, grammar, and standardization bodies
• Bootstrapping with a native-speaking child as proof of concept
• Newspapers as distribution channels that reduce divergence in word choice
• Backlash from religious authorities and the real enforcement costs of change
• The 1913 Technikum decision and the Technion language war over German vs Hebrew
• A listener extension connecting Rawls, insurance, and the veil of ignorance
• Book recommendation on American founding ideals and proclaiming liberty
You can follow Mike Munger on Twitter at @mungowitzKapitel
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The Main Course was Transaction Costs: Milton's Dinner with Ronald
Send us Fan MailWe tell the story of the Chicago dinner where Ronald Coase walks into a hostile room, and by the end everyone votes with him, led by Milton Friedman changing his mind in real time. Along the …
Shownotes
We tell the story of the Chicago dinner where Ronald Coase walks into a hostile room, and by the end everyone votes with him, led by Milton Friedman changing his mind in real time. Along the way, we unpack why transaction costs, not moral blame, often explain when law and institutions shape outcomes.
• the Aaron Director dinner and the vote that flips
• why Milton Friedman becomes a political symbol and lightning rod
• critiques from the right and left on markets, shareholder value, trade, and Chile
• Pigouvian externalities versus Coase’s reciprocal harm framing
• the Coase theorem as a benchmark and why real transaction costs make institutions decisive
• the “twedge” on comparative advantage and the “no free lunch” remix
• listener question on tax horizons, regime uncertainty, and the permanent income hypothesis
LINKS:
- Who's afraid of Milton Friedman (a video)
- Milton Friedman Lives (a blog post)
- Steve Medema, "What Happened on Blackstone Ave?"
- Mary Roach, BONK
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Regime Uncertainty: Political Risk is Transaction Cost!
Send us Fan MailWe walk through the weirdly powerful math that makes a stable $10,000 profit stream worth $50,000 in one world and $1,000,000 in another. Then we apply the same present value logic to politics …
Shownotes
We walk through the weirdly powerful math that makes a stable $10,000 profit stream worth $50,000 in one world and $1,000,000 in another. Then we apply the same present value logic to politics and show how unpredictable rules raise transaction costs, inflate the effective discount rate, and freeze long-term investment.
• the discount rate as the hidden driver of valuation
• why the consol bond makes present value intuitive
• P = X / R as a shortcut for long-lived assets
• how low interest rates mechanically boost asset prices
• discount rates as opportunity cost plus inflation plus risk
• regime uncertainty as political risk priced into investment
• how New Deal “experimentation” can prolong a downturn
• modern examples through tariffs tax policy and regulation
• a listener puzzle on why Coke concentrate costs more
Tell me what the answer is.
If anybody knows of a recording of the George M. Cohan play, Broadway musical, I would certainly like to be able to find it.
Michael Munger, "How Interest Rates Set Asset Prices: One Weird Trick," The Daily Economy, May 28, 2025Robert Higgs, "Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War," The Independent Review, Spring 1997
Amity Shlaes, The Forgotten Man: A New History of the Great Depression (HarperCollins, 2007)
Franklin D. Roosevelt, Oglethorpe University commencement address, May 22, 1932
Book o-da-week: Robert Higgs, Depresssion, War, and Cold War, (reprint) Independent Institute.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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The Senate Is The Enemy And Other Friction Stories
Send us Fan MailWe argue that “friction” is not always a flaw and can be a deliberate shield against bad collective decisions. We use Buchanan and Tullock’s public choice framework to show why supermajorities …
Shownotes
We argue that “friction” is not always a flaw and can be a deliberate shield against bad collective decisions. We use Buchanan and Tullock’s public choice framework to show why supermajorities, veto points, and other transaction costs can protect rights while still leaving room for day to day governing.
• contrasting cheap outrage with intentional institutional friction
• explaining why constitutional amendment rules use supermajorities
• breaking down external costs versus decision-making costs
• applying the framework to routine policy versus foundational rules
• linking cancel culture to collapsed coordination costs and lost buffers
• spotting designed friction in bicameralism, vetoes, jury unanimity, central bank independence, corporate charters, and treaties
• testing objections about minority rule, the filibuster, and who classifies “big” decisions
• discussing ballot initiatives, referenda, and easy-to-amend constitutions
• sharing listener letters, egg market notes, and a book recommendation
Links:- Shruti Rajagopalan on TAITC
- The Senate is the Enemy... (claims it comes from "The West Wing," but this is a story that I heard in the 1980s. West Wing just used it. Strange that people think a TV show is a SOURCE. It was just the MEDIUM, people!)
- Book-o-da-week: Benjamin Labatut, THE MANIAC
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Two Bakers Walk Into A Cartel
Send us Fan MailWe test a simple bakery price-fixing pact and watch it unravel, then use that failure to explain how transaction costs shape institutions, from unenforceable contracts to the rise of the …
Shownotes
We test a simple bakery price-fixing pact and watch it unravel, then use that failure to explain how transaction costs shape institutions, from unenforceable contracts to the rise of the corporate trust. We connect the common law doctrine of restraint of trade to the Sherman Act, modern merger fights, and a real-world egg pricing controversy where evidence is hard to untangle from supply shocks.
• a two-baker cartel that collapses as soon as cheating pays
• why courts historically refuse to enforce restraint of trade agreements
• how the trust device unifies control and removes the need to “trust” rivals
• how the Sherman Antitrust Act targets trusts and criminalizes collusion
• why merger discretion creates power and invites rent seeking
• why high prices and parallel pricing are not proof of conspiracy
• how price indexes can reduce transaction costs and also enable coordination
• two antitrust “twedges” that poke at efficiency arguments
• a listener letter on lateness norms and why uncertainty matters
If any listeners have some ideas about it, please do write in.
Links:- Egg producers settle
- Bartholomae, T.C. (1923). “The Common Law on Restraint of Trade.” University Journal of Business, 1(4), 451–466.
- Munger, M.C. (2021). “Giants among us: do we need a new antitrust paradigm?” Constitutional Political Economy. https://doi.org/10.1007/s10602-021-09350-w
- Sherman Antitrust Act (1890)
- William Baxter Joke
- Robert Bork, Antitrust Paradox
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Contracting with Yourself: Akrasia and Transaction Costs
Send us Fan MailWe start with a simple mystery: how the same person can make a proud plan at night and break it in the morning, even while still believing the plan is good. We connect akrasia, free will, and …
Shownotes
We start with a simple mystery: how the same person can make a proud plan at night and break it in the morning, even while still believing the plan is good. We connect akrasia, free will, and moral responsibility to transaction costs, treating self-control as a contracting problem between competing versions of ourselves.
• Jordan I and Jordan II as a model of divided preferences over time
• Hard determinism, libertarian free will, and compatibilism as the main philosophical map
• Responsibility and punishment as social conventions that reduce coordination costs
• Aristotle on voluntary intoxication and why blame can attach upstream
• Akrasia defined as wanting to want the right thing
• Plato’s knowledge-based denial of akrasia versus Aristotle’s acceptance of weakness of will
• Paul and Augustine on the internal conflict of the will
• Time-inconsistent preferences and hyperbolic discounting as a behavioral explanation
• Commitment devices as credible commitments and transaction cost engineering
• Odysseus and the sirens as the classic precommitment story
• Listener letter on military punctuality as costly signaling and institutional discipline
• Listener letter on recycling labels as regulation creating new transaction costsLinks and Sources
1. Ainslie, G. (1992). Picoeconomics: The strategic interaction of successive motivational states within the person. Cambridge University Press. Link: Cambridge University Press — Picoeconomics
2. Aristotle. (1999). Nicomachean ethics (W. D. Ross, Trans.). Batoche Books. (Original work published ca. 350 B.C.E.) Passage: Book VII (on incontinence/akrasia). Link: Nicomachean Ethics, trans. W. D. Ross (free PDF)
3. Augustine. (1838). The confessions of Saint Augustine (E. B. Pusey, Trans.). John Henry Parker. (Original work written ca. 397–400 C.E.) Passage: Book VIII, Chapters 8–9 (§§20–21). Link: Confessions, Book VIII, Pusey translation (free full text)
4. Davidson, D. (1970). How is weakness of the will possible? In J. Feinberg (Ed.), Moral concepts (pp. 93–113). Oxford University Press. Link: Oxford Academic — "How Is Weakness of the Will Possible?" (in Essays on Actions and Events) (gated — subscription/institutional access)
5. Dennett, D. C. (1984). Elbow room: The varieties of free will worth wanting. MIT Press. Link: MIT Press — Elbow Room (gated — purchase; excerpts free)
6. Dennett, D. C. (2003). Freedom evolves. Viking. Link: Internet Archive — Freedom Evolves (gated — free with Internet Archive lending account)
7. Hume, D. (1999). An enquiry concerning human understanding (T. L. Beauchamp, Ed.). Oxford University Press. (Original work published 1748) Passage: Section VIII, "Of Liberty and Necessity." Link: Hume Texts Online — Section 8 (free full text)
8. King James Bible. (2017). King James Bible Online. https://www.kingjamesbibleonline.org/ (Original work published 1769) Passage: Romans 7. Link: Romans, Chapter 7 (KJV) (free full text)
9. Plato. (1967). Protagoras (W. R. M. Lamb, Trans.). Harvard University Press. (Original work published ca. 380 B.C.E.) Link: Perseus Digital Library — Protagoras (Lamb trans.) (free full text)
10. Schelling, T. C. (1984). The intimate contest for self-command. In Choice and consequence: Perspectives of an errant economist. Harvard University Press. Link: National Affairs — "The Intimate Contest for Self-Command" (original 1980 essay, free full text) · Harvard University Press — Choice and Consequence (book page, gated)
11. Strawson, P. F. (1962). Freedom and resentment. Proceedings of the British Academy, 48, 1–25. Link: The British Academy — Freedom and Resentment (official publisher page, may be gated)
12. Vaihinger, H. (1925). The philosophy of 'as if': A system of the theoretical, practical and religious fictions of mankind (C. K. Ogden, Trans.). Harcourt, Brace. (Original work published 1911)
Link: Internet Archive — The Philosophy of 'As If' (free full text)
Book-o-da-Week: Emily Wilson’s translation of Homer’s THE ODYSSEY, 2018, WW Norton.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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When Mass Outrage is Cheap: TC Origins of Cancel Culture
Send us Fan MailWe trace a straight line from a 1697 blasphemy execution to modern cancel culture by focusing on one variable: the cost of turning speech into coordinated punishment. We break down how social …
Shownotes
We trace a straight line from a 1697 blasphemy execution to modern cancel culture by focusing on one variable: the cost of turning speech into coordinated punishment. We break down how social media creates common knowledge at near-zero cost, making outrage faster, bigger, and harder to control.
• Thomas Aikenhead’s case as a story about information and enforcement costs
• Transaction costs as the hidden limiter on persecution and social punishment
• The First Amendment limiting state coercion while leaving private sanctions intact
• Social media as a collapse in the cost of broadcasting accusations
• Common knowledge as the trigger for coordinated action by strangers
• Justine Sacco as the early template for modern cancellation dynamics
• Brendan Eich, Emmanuel Cafferty, James Damore, and PyCon “donglegate” as repeating patterns
• John Cleese on offense and the urge to control others’ behavior
• Listener letters on healthcare markets, consolidation, and transaction costs
• Certificate of need laws and price systems that shape competitionLetters:
- Dr. Anthony Digiorgio, UCSF, Graphic Novel Claim Denied, Off Label Ideas
- Surgery Center of Oklahoma
Book-o-da-week:
- Steven Pinker’s When Everyone Knows That Everyone Knows . . .: Common Knowledge and the Mysteries of Money, Power, and Everyday Life Scribner, 2025.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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You are NOT "Sorry I'm Late"!!
Send us Fan MailWe tell a story about German academic quarter hours-- akademische Viertel-- and use it to argue that lateness is an economics problem of coordination, incentives, and transaction costs, not just …
Shownotes
We tell a story about German academic quarter hours-- akademische Viertel-- and use it to argue that lateness is an economics problem of coordination, incentives, and transaction costs, not just manners. We lay out five rules that predict who shows up late, why the pattern spreads, and how to spot it before you commit to a recurring meeting.
• the “academic quarter hour” as a rule that makes lateness predictable
• lateness as a transaction cost that blocks group goals
• platonic travelers and the habit of leaving no buffer
• five rules of lateness and what each predicts
• why meetings drift into equilibrium lateness over time
• lateness as an externality and prisoner’s dilemma
• incentive fixes from social sanctions to financial penalties
• watch setting quirks and backwards induction as a practical test
• listener letter on medical insurance hiding prices from consumers
• why hospitals were small before 1935 and how sulfa drugs changed that
• letter on permitting payments for solar projects and why people call them bribes
• book recommendation for the punctually challengedLinks:
- Munger, Chron of Higher Ed, 5 Rules of Lateness in Academe
- Munger, Econlib, The 5 Sorry Rules of Lateness
- New York Times article on "Time Personality"
- U of Michigan's version of the academic quarter hour
Book-o-da-week: Never Be Late Again: 7 Cures for the Punctually Challenged
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
by Diana DeLonzor and Gerry DeLonzor. Post Madison Publishing May 19, 2026.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Transaction Costs Killed the Medical Stars
Send us Fan MailWe try to make sense of a real problem many of us feel: paying a lot for U.S. healthcare while still waiting months to see a doctor. We trace how engineered transaction costs, from the Flexner …
Shownotes
We try to make sense of a real problem many of us feel: paying a lot for U.S. healthcare while still waiting months to see a doctor. We trace how engineered transaction costs, from the Flexner Report to modern residency caps, restrict physician supply and protect price power while leaving clinicians overworked and patients stuck.
• getting “fired” by a health system and what it reveals about access
• why shortages don’t clear when prices rise, and how transaction costs block entry
• the Flexner Report as quality reform and supply restriction
• evidence of conflicts of interest and rushed methods behind the Flexner narrative
• Ruben Kessel’s puzzle on persistent price discrimination in medicine
• hospital privileges and county medical societies as cartel discipline
• why advertising bans and professional norms can function as anti-competition tools
• how residency caps and accreditation keep the bottleneck in place today
• a listener letter on data center payments as compensation versus bribes
• book of the week recommendation and a few parting thoughts**************************************
As I note in the episode, thanks to Dr. Lance Stell, Davidson College Department of Philosophy (emeritus). Lance offered this note about the epidsode:
There's a footnote to the Flexner report. It killed the Davidson medical college - NC"s first. The school was founded by a DC faculty as a proprietary school. After 10 years operating on campus, it moved to Charlotte where it had a clinical relationship w/ the Good Samaritan Hospital - a black hospital, becoming the first medical school in the country to have such a relationship. I can send you an article about it written by Dr. Eddie Hoover, MD, a surgeon and Editor of NC"s black medical journal. Flexner execrated proprietary medical schools and it was his goal to "close them." His damning review of the Davidson medical School, renamed The NC Medical College, was successful.
Thanks, Lance, I did not know that! I added that link, below.
****************************************
Links:- The infamous Flexner Report: http://archive.carnegiefoundation.org/publications/pdfs/elibrary/Carnegie_Flexner_Report.pdf
- Hiatt and Stockton on the Flexner Report: "The Impact of the Flexner Report on the Fate of Medical Schools in North America After 1909"
- Hiatt: "Around the Continent in 180 Days."
- Hiatt: "The Amazing Logistics of Flexner's Fieldwork."
- Kessell, Journal of Law and Economics, 1958: "Price Discrimination in Medicine."
- Eddie L Hoover, Catherine R Lewis. 2006. Journal of the National Medical Association. "Good Samaritan Hospital and the North Carolina Medical College circa early 1900: the first major affiliation between a black hospital and a white medical college."
- Ernest Jones, "The God complex" in Essays in Applied Psycho-Analysis.
Earliest source I could find for the TWEJ: https://www.netfunny.com/rhf/jokes/old89/godplay.840.html
PA data center story: https://www.thecentersquare.com/pennsylvania/article_3b615fd8-5d36-45c4-bfb6-4a3162104f0b.html
Book-o-da-week: Daniel Hannan, Inventing Freedom, Broadside Press. https://www.amazon.com/Inventing-Freedom-English-Speaking-Peoples-Modern/dp/006223174X/
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Parasites And Property Rights
Send us Fan MailBIBLIOGRAPHICAL NOTE: The information in this episode comes from Red Flags Press. Their main web site is very useful for research purposes, and I recommend it!We follow the idea of the “social …
Shownotes
BIBLIOGRAPHICAL NOTE: The information in this episode comes from Red Flags Press. Their main web site is very useful for research purposes, and I recommend it!
We follow the idea of the “social parasite” through socialist writing and show how it shifts from moral accusation to an enforceable legal category once society claims ownership over individual labor. We argue that the transaction costs of monitoring effort and assigning “socially useful” work push real-world socialism toward surveillance, coercion, and punishment.
• socialist critique of wage labor as work or starve
• transaction costs as defining, monitoring, and enforcing property rights
• the property rights switch from self-ownership to society owning labor
• “from each according to their ability” as an obligation backed by force
• socialist writers labeling middlemen and many professions as parasites
• the party as the decision-maker when prices are suppressed
• Joseph Brodsky’s trial as a real anti-parasite enforcement example
• why the parasite problem expands and becomes politically arbitrary
• how similar labor-claim logic shows up in authoritarian socialism and fascism
• why Scandinavian social democracy is capitalism, not classical socialism
The book of the week is Lenin’s What Is to Be Done? Burning Questions of Our Moment, and I strongly recommend it.Links:
Red Flags, "Why Socialism Says Slacking is Theft."
Moments in Soviet History: The Trial of Joseph Brodsky
Leo Huberman, The ABCs of Socialism.
"Soviet Era 'Parasites'" https://www.themoscowtimes.com/2016/05/20/soviet-era-parasites-return-to-todays-russian-a52934
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Books Don't Bet, They Match
Send us Fan MailWe break down how sportsbooks function as brokers that match contracts, set prices through the point spread, and earn their living through the vig. Kevin Braig joins us to explain how law …
Shownotes
We break down how sportsbooks function as brokers that match contracts, set prices through the point spread, and earn their living through the vig. Kevin Braig joins us to explain how law, technology, and property rights shape whether sports betting markets stay clean or slide toward corruption and bad incentives.
• five reasons people gamble, from dopamine to positive skewness
• what a sports bet is as a contract and why a book exists as a broker
• how the 11-to-10 price and the vig work in practice
• why point spreads are a pricing technology and a marketing tool
• how street-level enforcement and local political capture governed bookmaking
• why Nevada legalized betting and how phones and smartphones changed everything
• the Coasean case for clearly assigned property rights between leagues and books
• how prop bets and inside information can erode trust in games
• why extreme taxes and licensing fees raise transaction costs and distort markets
Judge Kevin Braig's book, "Bookmakers vs. Ballowners"RH Coase, "The Problem of Social Cost"
Gustavo Dudamel's opera, "Wealth of Nations"
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Hereditary Monarchy: At Least You Know Which Idiot Is Next
Send us Fan MailHereditary monarchy seems like a ridiculous way to pick a leader, yet it dominates most of human political history. We argue the reason is transaction costs: succession systems survive when they …
Shownotes
Hereditary monarchy seems like a ridiculous way to pick a leader, yet it dominates most of human political history. We argue the reason is transaction costs: succession systems survive when they settle “who rules next” cheaply enough to prevent recurring civil war.
• Why hereditary monarchy is historically prevalent compared with democracy and universal suffrage
• Why “divine right” stories often rationalize a choice people already find tolerable
• Thomas Paine’s critique of hereditary succession and what it misses
• Hobbes on the state of nature as what happens when sovereignty is contested
• Succession as the master coordination problem of political order
• Transaction costs applied to elections, enforcement, legitimacy, and rent seeking
• Why elective monarchy can become an armed auction for total power
• Bright line rules versus discretionary selection and why speed can beat “better”
• How constitutional design lowers the cost of leadership transition when it works
• The legitimacy problem and why dynasties converge on endogamy
• The genetic consequences of endogamy and the Habsburg cautionary tale
• Twedges, book recommendation, and a listener letter on board game “math trades”LINKS:
Thomas Paine, Common Sense, February 1776
Michael Munger, The Ugly Pig, 20224
A.P. Martinich, Thomas Hobbes: A Biography, 1999.
Thomas Hobbes, Leviathan, 1651.
Neal Schultz, Suicide Kings: Hereditary Monarchy, 2025
Cosmos Institute, Coasian Bargaining at Scale, 2025
UPDATE: An interesting, and more clearly articulated, application of the reasoning here.... https://aminga.substack.com/p/how-transaction-cost-economics-explains
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Swollen Permits? Call Chile!
Send us Fan MailPermits feel like “just paperwork”, until they quietly become the biggest barrier to building, investing, and even basic economic growth. We use Chile’s fight with “permisologia” to show how …
Shownotes
Permits feel like “just paperwork”, until they quietly become the biggest barrier to building, investing, and even basic economic growth. We use Chile’s fight with “permisologia” to show how bureaucracy creates delay, uncertainty, and political risk even when the stated goal is safety or environmental protection.
• permits as transaction costs that quietly tax projects and entrepreneurship
• why bureaucracy is not the same thing as government and why it crowds out market coordination
• “permisologia” in Chile and how a one-stop shop becomes many counters
• parallels to India’s license raj and the logic of rent seeking choke points
• Dominga as a case study in shifting rules, scandal, and investment held hostage
• documented GDP and jobs costs from permitting delay and collapsed processing capacity
• Chile’s LMAS reform plan including deadlines, digitization, and sworn declarations with sanctions
• Parkinson’s Law, bike shedding, and why committees obsess over trivial items
• listener letter on commune life and how transaction costs show up inside “one big firm”
Links:What is "Permisología"? https://comentarista.emol.com/2294117/27242033/Emol-Social-Facts.html
Framework Law (LMAS): https://www.bluefieldresearch.com/research/chile-takes-another-step-towards-mining-reform/
Parkinson's Law and the "Law of Triviality": https://fs.blog/parkinsons-law/
Twin Oaks Community: https://www.twinoaks.org/
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Honor Among Thieves: Anja Shortland and Ransomware
Send us Fan MailA talk with Dr Anya Shortland about the economics of ransomware and the gray-zone institutions that let extortion markets function when nobody can truly enforce trust. We dig into how cyber …
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A talk with Dr Anya Shortland about the economics of ransomware and the gray-zone institutions that let extortion markets function when nobody can truly enforce trust. We dig into how cyber insurance quietly becomes a form of governance, why data leaks change the game, and what national security risks emerge as everything gets connected.
• criminal markets that sit between legal firms and underworld gangs
• insurance as governance through protocols, repeat play, and incident response packages
• why victims amplify risk when they throw money at crises
• the origin story of early ransomware and the transaction costs that made it fail
• step-by-step ransomware mechanics from phishing to exfiltration to encryption
• how gangs price ransoms by reading cash flow and insurance certificates
• leak sites, privacy regulation, and third-party liability as bargaining leverage
• why cyber insurance is fragmented and slow to enforce security standards
• deductibles, coverage caps, and market hardening that push better cybersecurity
• AI-enabled phishing and the asymmetric arms race between attackers and defenders
• state-linked ransomware, impunity jurisdictions, and critical infrastructure threats
• efficiency versus resilience in smart cities and the Internet of ThingsAnja Shortland at Kings College London
- Shortland's book, Dark Screens: https://www.amazon.com/Dark-Screens-Hackers-Shadowy-Ransomware/dp/1541705750
- Shortland's first TAITC episode: "Deals with shadows"
Links mentioned in podcast:
Pete Leeson's book, The Invisible Hook
David Deutsch's book, The Beginning of Infinity
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Are Transaction Costs Really Just Human Distance
Send us Fan MailWe connect Adam Smith’s moral psychology to the modern idea of transaction costs and argue that the biggest frictions in markets start with the cost of understanding other people. We show how …
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We connect Adam Smith’s moral psychology to the modern idea of transaction costs and argue that the biggest frictions in markets start with the cost of understanding other people. We show how sympathy, propriety, self command, and reputation turn separate perspectives into workable cooperation and why justice is the real precondition for a stable commercial order.
• why transaction costs always exist and why institutions matter when exchange is costly
• a brief history of the term from Coase to an early use in Scitovsky
• transaction costs as asymmetric information and the cost of social coordination
• Smith’s epistemic distance and why sympathy requires imaginative effort
• propriety as social calibration through the impartial spectator
• self command as the price of being socially intelligible
• commerce as a practical school for restraint, trust, and predictability
• the prudent man as a model of conduct that reduces suspicion and monitoring
• Buchanan’s moral community, moral order, and moral anarchy as lenses on social stability
• why society can survive without beneficence but not without justice
• a listener’s college admissions case where interviews act as a separating equilibrium and improve aid allocation
Links:- Liberty Fund eBook--Theory of Moral Sentiments (PAGES DO NOT MATCH UP WITH PRINT EDITION!)
- TAITC with Steve Medema, on Coase and Transaction Costs
- Dan Klein and Russ Roberts on Theory of Moral Sentiments
- Tibor Scitovsky, 1940, Economica paper
- Gustavo Dudamel’s ‘the wealth of nations’ Melds Opera and Economics - Bloomberg
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith's Wealth of Nations Episode 10: Always Contemporary
Send us Fan MailWe assess Adam Smith’s enduring ideas—moral authorization of commerce, division of labor, emergent order—and confront where his optimism breaks: how democratic politics and business fuse to …
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We assess Adam Smith’s enduring ideas—moral authorization of commerce, division of labor, emergent order—and confront where his optimism breaks: how democratic politics and business fuse to create monopoly privilege. The result is a maintenance‑intensive commercial order that needs competition defended, not assumed.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• presumption for markets under secure property, justice, and competition
• division of labor as the main engine of productivity and growth
• invisible hand reframed as emergent order, not automatic virtue
• critique of mercantilism, monopoly privilege, and rent seeking
• limited but real state functions: defense, justice, public works, education
• motivational symmetry and public choice constraints on government
• trade clarity: buy where cheaper, specialize, gains from exchange
• competition as a public good that must be defended
Happy 250th birthday, Wealth of Nations
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith's Wealth of Nations Episode 9: Spending, Taxing, and Debt
Send us Fan MailWe walk through Book Five of The Wealth of Nations to map a state that defends, adjudicates, and builds wisely, then pays for it without killing growth. From militias to standing armies …
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We walk through Book Five of The Wealth of Nations to map a state that defends, adjudicates, and builds wisely, then pays for it without killing growth. From militias to standing armies, fee-based courts to salaried judges, turnpikes to basic schooling, and taxes to debt, we test what holds up now.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• defense as a professional, civilian-controlled standing army
• justice as predictable law and salaried judges
• public works funded by user fees where feasible
• education to offset division of labor’s civic costs
• incentives in universities and churches
• four tax maxims and ability to pay
• why land taxes beat mobile capital taxes
• state property and monopolies as bad revenue
• debt, consols, and fiscal illusion
• Smith with Hume and public choice echoes
We do have one more episode, which is a summing up and taking stock of why the Wealth of Nations still matters today. It will post Tuesday, February 24th, 2026.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith Episode 8: A Nation of Shopkeepers
Send us Fan MailSmith 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 …
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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.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• 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
• free ports versus exclusive companies and growth outcomes
• enumeration, navigation acts, and distorted incentives
• defense costs and the arithmetic of empire
• the “nation of shopkeepers” argument and public choice
• draconian wool laws, smuggling, and consumer losses
• physiocracy’s insights and errors, sector favoritism
• the system of natural liberty as Smith’s alternative
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Parts is (Not) Parts: The Life Cycle Problem for Heavy Equipment
Send us Fan MailWe trace how Alex 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 …
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We trace how Alex 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 errors and downtime
• why parts discounts matter less than service speed
• Japan’s high saturation rental market and long lifecycles
• sensors, IoT, and AI for damage attribution and prevention
• decommoditizing parts through integrated workflows
• Coasean boundaries of the firm and renting incentives
• why RB Global acquired SmartEquip to span the lifecycle
• the back-office puzzle of bespoke systems vs SaaS
“Next week: Book 4, chapters 7–9 from The Wealth of Nations”- (Parts is Parts, from Wendy's) https://youtu.be/OTzLVIc-O5E?si=Mjz8JX-Sl_sdG6bC
- SmartEquip web site: https://www.smartequip.com/schedule-demo/
- Announcement of Schuessler being (re)hired as President: https://news.ararental.org/schuessler-appointed-president-of-smartequip
- Why Japanese "used" equipment commands a premium: https://everycar-review.com/2025/08/27/voices-from-global-dealers-why-japanese-used-machinery-is-their-first-choice/
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Money Killed Barter; Can a Platform Bring It Back?
Send us Fan MailWe 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 …
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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
• Tbadel’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 SiteFrom JJ's letter: Photos of "Parklet" in San Francisco.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith Episode 7: The Errors of Mercantilism--Bullion, Balances, and Bounties
Send us Fan MailTracing 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 …
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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 reciprocityMentioned 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 @mungowitzKapitel
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Adam Smith's Wealth of Nations Episode 6--Division of Land
Send us Fan MailWe 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 …
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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 incentives
- why Smith’s natural order inverts in Europe
- the physiocrats’ growth model and Smith’s critique
- Solow’s technology vs North’s institutions vs McCloskey’s ideas
- Joel Mokyr's synthesis and improvement (written BEFORE he Nobel'ed!)
- feudal constraints primogeniture and entail suppressing agriculture
- towns as islands of order through charters and fixed rents
- the king–burgher alliance against barons
- merchants as improvers of land and capital risk-takers
- commerce introducing liberty and good government
- Smith’s “most important” passage and its modern relevance
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Little's Law: The Transaction Costs of (Re)Drawing Lines
Send us Fan MailA 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 …
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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 limited by the extent of the market
• sub shop and Chipotle as live line-balancing examples
• Smith’s three productivity drivers applied to modern factories
• Little’s Law guiding WIP, stations, and throughput
• costly line changes and capacity planning in auto plants
• meta-tools, CNC, and multi-operation automation
• stamping dies, SMED, and Toyota’s flexibility edge
• just-in-time, early error detection, and quality economics
• U.S. responses: robotics, platforms, and Deming at Ford
• NUMMI proof: same workforce, new system, better output
• CAD parametrics, modular design, and clay by robot
• structure by design: darts, curves, and manufacturability
• specialization, ergonomics, turnover, and the $5 day
• worker empowerment as applied Hayekian local knowledge
• letter on bureaucracy, spending, and the social order book pickSome links:
- Workload modeling and "Little's Law"
- Little on Little's Law
- "Just In Time" inventory and manufacturing
- Edwards Deming's "14 Principles for Management"
Book o'da'Month: Jacques Rueff, THE SOCIAL ORDER
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith's Wealth of Nations: Episode 5--The Text of Book II
Send us Fan MailThis 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 …
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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.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• 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 currency by substituting paper money
• Smith's concept of productive versus unproductive labor helps explain which activities increase national wealth
• The acquisition of skills represents "human capital" – a concept Smith pioneered centuries before Gary Becker
• Interest on loans is justified as compensation for the productive use of capital, though Smith supports moderate usury laws
• Smith identifies four employments of capital: agriculture (most beneficial), manufacturing, wholesale trade, and retail
• Smith criticizes mercantilism for privileging foreign trade over domestic production
• Division of stock and modern financial markets solve the "time travel problem" by allowing entrepreneurs to access capital without primitive accumulation
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith's Wealth of Nations: Episode 4--Capital and Book II: Introduction
Send us Fan MailBook 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 …
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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.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• Capital is not capitalism – Smith wrote before "capitalism" was invented, using the term "stock" to describe accumulated resources
• Division of stock works alongside division of labor – capital must be accumulated before it can be employed productively
• Justice (protection of person, property, and promise) is prerequisite for investment – without security, people hide rather than invest their stock
• Fixed capital (tools, buildings, skills) versus circulating capital (money, wages, materials) form different branches of stock
• Money serves as "the great wheel of circulation" – facilitating exchange but not itself productive
• Banking allows society to operate with less precious metal – freeing resources for productive investment
• Productive labor creates vendible commodities while unproductive labor (government, services) perishes in performance
• Parsimony (saving) drives growth while prodigality reduces funds available for productive employment
• Interest is legitimate compensation for foregone use of capital – similar to rent on land
• Agriculture, manufacturing, wholesale trade, and retail are the four main employments of capital
• Modern financial markets solve Marx's "primitive accumulation" problem – entrepreneurs can sell shares of future profits
Let me know your thoughts on these ideas from Adam Smith in the comments below.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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The Innovation is the Exchange Itself!
Send us Fan MailChris 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.• …
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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.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• 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 market
• Exchange specialists subsidized trading in small-cap stocks using profits they made from large-cap stocks
• The phrase "your word is your bond" wasn't just a saying but the foundation of the trading system. Exclusion from the exchange was enough of a threat to discipline bad actors
• Specialists would ensure market liquidity and "continuity" in pricing, preventing wild price swings
• The transition to electronic trading and decimal pricing in the late 1990s fundamentally changed market dynamics
• High-frequency trading firms don't have the same ethical obligations that floor traders did
• The number of publicly traded companies has declined significantly since the move to screen-based trading
• Self-regulation through the exchange helped create trust that made markets function effectively. Not perfectly, but effectively.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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When Bribes Become the System: Understanding Lock-In
Send us Fan MailCorruption 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 …
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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 create feedback loops through rent-seeking, patronage, and corruption that redistribute resources to entrench elites
• Mental models - our imperfect cognitive frameworks - resist change because belief systems are costly to abandon
• Lock-in occurs when early institutional choices create path dependencies that make reform nearly impossible
• Officials in corrupt systems treat public offices as prebends (sources of personal income) rather than public service positions
• In Nigeria, prebendalism meant officials used positions to enrich themselves and distribute benefits to their ethnic communities
• Russian corruption intensified post-Soviet era when state salaries plummeted and bribes became survival mechanisms
• Reform typically requires massive shocks, external enforcement, or exceptional leadership willing to impose significant costs on corrupt officials
The schedule is changing, because summer is over. Going forward, we'll have two episodes each month until January - one on Wealth of Nations and one interview. The next interview will be Tuesday, September 9th, and the next Wealth of Nations episode will be Tuesday, September 23rd.Some links:
- Previous episode on corruption: Shruti Rajagopalan
- Richard Joseph and "Prebendal" Nigeria
- Douglass North and transaction costs/lock-in
- Douglass North on Institutions
- Denzau and North, "Shared Mental Models" (Kyklos)
Books o'da'week:
- Johan Norberg Peak Human: What We Can Learn from the Rise and Fall of Golden Ages
- Guy Gavriel Kay A Brightness Long Ago
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
You can follow Mike Munger on Twitter at @mungowitzKapitel
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Adam Smith's Wealth of Nations: Episode #3--Introduction and Book I
Send us Fan MailAdam 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.• …
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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.
If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !
• 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 productivity through specialization, increased dexterity, and tool development
• Smith's famous pin factory example shows how 18 specialized workers produce thousands of times more than individuals working separately
• The extent of the market limits division of labor—larger markets allow greater specialization
• Smith argues that differences between philosophers and street porters arise from "habit, custom, and education" not innate capacity
• While profit is legitimate, Smith criticizes how powerful interests manipulate government to restrict competition
• Justice (respecting person, property, and promises) forms the essential foundation for any functioning commercial society
• Smith's work intended as a handbook for lawmakers, not ideological advocacy
• The Wealth of Nations represents applied moral philosophy addressing how societies become prosperous
Join us next time when we'll examine Book Two of Smith's masterpiece.
You can follow Mike Munger on Twitter at @mungowitzKapitel
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