Human Progress Is Lower Transaction Costs

Here’s an interesting article about one of the great, unacknowledged aspects of history: the reduction of transaction costs. Most people don’t give it a moment’s thought, but exchange is how we acquire things that we want. For much of history, there have been all sorts of hurdles impeding exchanges. The more we have reduced the hurdles, the better it has been.

Or consider the great economic transaction cost reducer, money. When we say that the problem with barter is that we cannot find someone who both has what we want and wants what we have, we are making a claim about high transaction costs. By being a generally accepted medium of exchange, money assures buyers that the seller will always want what they have and assures sellers that the other party will have what they want. It dramatically reduces the transaction costs of economic exchange, promoting more trade and greater wealth.

One can also point to a whole variety of other economic and social institutions that reduce the costs of engaging in exchange. The major institutions of a liberal society that do so are clearly defined and well-enforced property rights, the rule of law, and stable money. The market as a whole, and especially market prices, reduce transactions costs as well.

Posted by on October 9th, 2017 at 2:01 pm


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