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Adam Smith's pin factory example from "The Wealth of Nations" demonstrates how dividing labor into specialized tasks dramatically increases productivity. Ten workers specializing in different aspects of pin-making could produce 48,000 pins daily, while individually they might struggle to make even 20 pins each—a productivity increase of at least 240 times. This division of labor, Smith argued, is limited by the extent of the market.

Transaction costs—expenses associated with exchanging goods across distances—determine this market extent. As railroads, steamships, and eventually air freight reduced these costs, pin manufacturing evolved from numerous small local producers to global consolidation. The largest pin producer today, Prim-Dritz Corporation (headquartered in South Carolina), conducts most manufacturing in Asia. Modern pin factory workers now produce approximately 800,000 pins daily—200 times more than in Smith's era.

This transformation wasn't about "exporting jobs" but rather the natural evolution of specialized production. Multiple attempts to form price cartels in the pin industry failed as producers leveraging greater division of labor could always undercut competitors. The pattern we see in pins repeats across countless industries: as transaction costs fall, markets expand, allowing for increased specialization and productivity.

Understanding this relationship between division of labor and market size helps explain why some manufacturing concentrates geographically, why attempting to "bring back" certain industries is economically challenging, and why consumer prices have fallen for many goods. Smith's insight continues to provide a framework for understanding economic trends in our increasingly interconnected global economy. 

Links:

• Dutton, H. I., and S. R. H. Jones.  “Invention and Innovation in the British Pin Industry, 1790-1850.”  British Business History.  57 (1983):  175-193.
•  Jones, S. R. H.  “Price Associations and Competition in the British Pin Industry, 1814-40.”  Economic History Review.  26 (1973):  237-253.  
•  Jones, S. R. H.  “Hall, English, and Co., 1813-41:  A Study of Entrepreneurial Response in the Gloucester Pin Industry.”  Business History.  18 (1976): 35-65. 
•  Liberty Fund: Adam Smith’s Pin Factory.
•  McNulty, Mary.  “How Straight Pins are Made.”  How Products are Made.   ENotes. 
•  Pratten, Clifford J.  “The Manufacture of Pins.”  Journal of Economic Literature.  18 (1980):  93-96.
•  Stigler, George J.  “The Division of Labor is Limited by the Extent of the Market.” Journal of Political Economy, 59(1951): 185-193. 

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What happens when we stop seeing politics and markets as separate spheres and start recognizing their deep entanglement? Mikayla Novak, senior fellow at the Mercatus Center, challenges conventional economic thinking in favor of Dick Wager's "entangled political economy."

Drawing from her fascinating career path through Australia's Treasury, free market think tanks, and her pursuit of multiple courses of study, Novak offers unique insights into institutional economics and political networks. Her background bridges disciplines in ways that embody Hayek's wisdom that "you can't be a good economist by just being an economist."

We consider Boettke's distinction between "mainstream" economics—with its equilibrium models and market failure diagnoses—and the "mainline" tradition that views economies as dynamic processes shaped by institutions. This conversation reveals how Richard Wagner's entangled political economy theory helps understand policy failures. When government and markets form complex networks rather than separate spheres, simplistic reform attempts like "just cut spending" are disastrously unsuccessful.

The discussion vividly illustrates why transaction costs matter deeply for institutional analysis. We examine how political networks form with elites enjoying low-cost access while ordinary citizens remain at the periphery. This structural understanding helps explain why some inefficient policies persist despite their obvious flaws—they benefit the well-connected core of our political-economic system.

Mikayla Novak's page link

Richard Wagner: 

• Entangled Political Economy Research Network
• Buchanan's Liberal Theory
• Politics as a Peculiar Business

Previous TAITC Episodes of Relevance:

• Randall Holcombe and Political Capitalism
• Donald Boudreaux on Law and Legislation

Late Bloomers book, by Rich Karlgaard

Munger on tariffs and costs

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Why do harmful policies like tariffs keep coming back despite universal condemnation from economists? The answer lies in the dynamics of collective action and concentrated interests.

In this eye-opening conversation with G. Patrick Lynch, Senior Fellow at Liberty Fund, Mike Munger explores the fascinating world of public choice theory and how it explains some of democracy's most persistent puzzles. Lynch, a self-described "popularizer of public choice," breaks down complex economic principles into digestible insights about political behavior.

The discussion begins with the foundations of public choice theory—the application of economic reasoning to political decisions. Far from portraying politicians as uniquely self-interested, public choice simply acknowledges that all humans respond to incentives, whether in markets or politics. As Lynch explains, "It's a mistake to characterize public choice as people being just materially self-interested." Even Mother Teresa was pursuing her goals single-mindedly—the definition of self-interest properly understood.

When the conversation turns to tariffs, Lynch delivers a masterclass in why bad policies persist. Manufacturing interests receive concentrated benefits and organize effectively, while consumers bear diffuse costs. "That $70,000 job costs consumers $210,000 to $250,000 in increased prices," Munger notes. But since an individual consumer might pay just pennies more per purchase, they won't mobilize political opposition.

Perhaps most fascinating is the exploration of Elinor Ostrom's Nobel Prize-winning work on common-pool resources. Conventional wisdom suggested that without government intervention, shared resources face inevitable destruction through overuse. Yet Ostrom discovered countless examples worldwide where communities developed sophisticated management systems to sustain resources over generations.

If you've ever wondered why policies that economists universally condemn keep returning, or why small groups seem to dominate our politics despite majority rule, this conversation offers profound and sometimes unsettling answers. Subscribe now for more insights that will transform how you understand politics, economics, and collective decision-making.

LINKS:

G. Patrick Lynch:

• https://www.econlib.org/author/plynch/
•  https://www.civitasinstitute.org/research/the-young-americas-need-each-other 
• https://lawliberty.org/author/patrick-lynch/
• https://lawliberty.org/book-review/public-choice-with-chinese-characteristics/

 Shaggy Dog story: 

• https://www.phrases.org.uk/meanings/shaggy-dog-story.html 
• The ORIGINAL Shaggy Dog story:  https://stephengreensted.wordpress.com/2011/01/20/the-original-shaggy-dog-joke/

Book’o’da Month:    Two Books, both by William Bernstein. 

• The Birth of Plenty: How the Prosperity of the Modern World was Created. McGraw-Hill, New York, 2004,

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What happens when we no longer consume scarce information through trusted, verified institutions, but instead through an abundance of unbundled content without context or curation? John Green, rising star in political science from Duke University, takes us on a tour of the rapidly evolving  landscape of political information.

Green challenges conventional wisdom about how ideologies function, arguing they're not so much coherent philosophical systems as they are socially shared belief networks. In these networks, most people specialize in just one or two issues they deeply care about, while adopting their coalition's positions on everything else. This creates an environment where signaling group loyalty becomes crucial—explaining why people sometimes make outrageous claims not despite their falsity, but precisely because the willingness to say something costly signals authentic commitment.

The conversation takes an illuminating turn when Green unpacks his groundbreaking research on "curation bubbles." Unlike echo chambers or filter bubbles, these environments emerge when people strategically share content based on its utility for their side, regardless of source. A conservative might enthusiastically share a New York Times article criticizing Democrats, while generally dismissing the publication as biased. This selective curation creates information environments that are neither completely closed nor genuinely diverse.

Perhaps most troubling is Green's insight about misinformation in the digital age. The real danger isn't simply false claims from unreliable sources, but rather the strategic repurposing of true information to create misleading narratives. When accurate statistics or facts are stripped of context and woven into deceptive frameworks, traditional fact-checking approaches fall short.

As we navigate this unbundled media landscape, the question remains: can we rebuild institutions that verify and curate information effectively? The answer may determine the future of our shared reality and democratic discourse.

LINKS

Jon Green at Duke

Green, et al on "Curation Bubbles" in APSR

Converse on Belief Systems

Munger on "Direction of Causation"

Munger on Pub Cost, Curation, and Verification

Letter Response:

Sweden is NOT socialist!  (If you don't believe me, believe Andreas Bergh...)

Book’o’da Month:  

• Alexander Kirshner, Legitimate Opposition, 2022, Yale University Press.  ISBN:  9780300243468. https://yalebooks.yale.edu/book/9780300243468/legitimate-opposition/
• Excellent podcast with Kirshner on the book.

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 Join economist Peter Boettke as he discusses how transaction costs impact market efficiency and our everyday decisions. We delve deep into historical examples, particularly the Soviet Union, to highlight the consequences of centralized planning versus individual market actions.

Through engaging anecdotes and rigorous analysis, Boettke reveals why understanding transaction costs is essential for navigating the complexities of modern economies. We also explore the evolving discourse surrounding socialism, questioning whether new technologies, such as AI, could revolutionize planning efforts. This episode is not just for economists; it's a critical discussion for anyone seeking to understand the interplay between institutions, information, and human behavior in shaping societal outcomes.

Our conversation unravels the myths surrounding economic models and their real-world applications, encouraging listeners to think critically about the institutions that govern our economy. Don’t miss out on this thought-provoking discussion that could reshape your perception of economics.

Peter Boettke:  

• Web page:  https://economics.gmu.edu/people/pboettke
• Recent book: Socialist Calculation Debate (Cambridge U Press) https://www.cambridge.org/core/elements/abs/socialist-calculation-debate/5E63749F9D34D065193DCF77FC9FD8A9
• Recent Econtalk: https://www.youtube.com/watch?v=5NVocBZ8S7U 

Munger papers on “Status Quo” and James Buchanan:   

• (with G. Vanberg) https://scholars.duke.edu/publication/1475073 
• https://link.springer.com/chapter/10.1007/978-3-030-03080-3_3 

Munger on information and "generation": The "Socialist Generation Debate," at AIER

Mainline Economics Resources:

•  Living Economics
•  Six Nobel Lectures
•  Applied Mainline Economics

 Book'o'da'month:  

Bill Mauldin, BRASS RING: A SORT OF MEMOIR. 1973, WW Norton.  

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What if transaction costs could shape entire political and economic systems? Join us for an insightful discussion with Shruti Rajagopalan, a senior research fellow at the Mercatus Center, as she takes us through her fascinating journey from the University of Delhi to George Mason University. Her research on India's economic liberalization shaped her understanding of economics and public choice theory, and now she is looking at the Indian Constitution as a subject of study. She shares how India's socialist elements and frequent amendments navigate the balance between democracy and central planning.

Explore the contrasting worlds of constitutional amendments in the United States and India, where transaction costs play a pivotal role. We unravel the philosophical differences in how these two nations interpret their constitutions, impacting citizens' rights and governance in uniquely distinct ways. Through metaphors like the Ship of Theseus, we evaluate the stability and adaptability of these constitutions, shedding light on how they sustain their respective democratic frameworks amid evolving societal needs.

Adding a dose of humor, we recount a satirical tale of international contractors bidding for a White House fence and explore the complexities of voting systems influenced by transaction costs. The episode takes a reflective turn as we discuss Ulysses S. Grant's memoirs, highlighting themes of personal sacrifice and political intricacies. This conversation promises to enrich your understanding of how economics, law, and political systems intricately intertwine, offering both serious insights and light-hearted moments to ponder.

Links:

Dr. Shruti Rajagopalan's web site at Mercatus and her personal web site
Dr. Rajagopalan's podcast, "Ideas of India" and publications

Book o'da'month: U.S. Grant, Personal Memoirs, Modern Library, 1999.

A note on the TWEJ: Some listeners may find the joke racist. But in fact each of the three stereotypes captures a kind of "excellence," though the three kinds of excellence might not all be equally socially admirable. Gordon Tullock, who was discussed in this episode, made some observations about corruption that are worth keeping in mind: Western nations abhor, or pretend to abhor, corruption, though in fact there is plenty of it in the West. Tullock's point was that, in a nation with dysfunctional institutions, corruption can be efficiency enhancing. Institutions matter. The point is not that Germans are inherently organized and methodical, nor that Mexicans are inherently hard-working and efficient, and certainly not that Indians are all corrupt. But the political and economic systems of those nations create a setting where such actions are "rational," and even expected.  I wrote a piece for Public Choice on Tullock's insight, and the problem of India, and that's why I enjoyed this joke!

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This episode explores the intersection of democracy and capitalism, focusing on the concept of political capitalism and its relation to cronyism. Randall Holcomb discusses transaction costs, charismatic leadership, and critiques the idea that democracy and separation of powers inherently checks coercion, stressing the need for competing elites to foster accountability.

• Transaction costs hinder citizen engagement in political processes
• Political capitalism defined as capitalism influenced by political motives
• Dynamic of cronyism within democratic systems
• Buchanan's notion of "politics as exchange" explored
• Political elites dominant in shaping policy and public preferences
• Charismatic leadership affects political beliefs and decisions
• Importance of competing elites for maintaining a balanced political landscape
• Reasons for optimism surrounding innovation in capitalism despite political challenges
• Upcoming book discusses further aspects of political exchange

Links!

Randy Holcombe's web site at FSU 

• Political Capitalism book
• Following Their Leaders book

Michael Giberson blog post at Knowledge Problem, on Price Gouging.

Book'o'da Month:  Peter Boettke, Rosolino A. Candela and Tegan Lindstrom Truitt, The Socialist Calculation Debate: Theory, History, and Contemporary Relevance   https://www.cambridge.org/core/elements/socialist-calculation-debate/5E63749F9D34D065193DCF77FC9FD8A9

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Curious about how the world of prison economics operates? Get ready to uncover a hidden universe with our guest, David Skarbek, a leading voice in political economy. David takes us on a captivating journey from his early days in construction to his groundbreaking research at George Mason University, where he was inspired to explore the economics of unconventional spaces. His insights reveal the sophisticated systems of governance designed by prison gangs to maintain order and manage illicit economies. Whether you're fascinated by how these groups mimic pirate crews or intrigued by their ability to regulate harm in a high-stakes environment, this episode promises to reshape your understanding of extra-legal cooperation.

David Skarbek, Michael Targoff Professor of Political Economy at Brown University.

David Skarbek's Amazon Author Page

Book'o'da'Month:  Shattered: Inside Hillary Clinton's Doomed Campaign  – Crown Publishers, April 18, 2017. by Jonathan Allen  Amie Parnes.

Club Random: Bill Maher talks to William Shatner

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Todd Zywicky, professor at George Mason's Scalia Law School, challenges some conventional legal doctrine, taking up the views of Bruno Leone and Friedrich Hayek. What if the legal world has underestimated the power of spontaneous order? Todd's intellectual journey sheds light on how these groundbreaking ideas contrast sharply with the dominant constructivist views shaping contemporary legal thought.

Todd offers perspectives on the role of intuition and reasonableness in the courtroom, inspired by the legacies of Leone and Hayek. Uncover the hidden parallels between market dynamics and legal systems, emphasizing the fluidity of Roman law as a process of discovery.

Links:

Todd Zywicki's Faculty Page

Zywicki's published work on Leoni, and the Common Law

• The Rise and Fall of Efficiency in the Common Law: A Supply-Side Analysis, 97 NORTHWESTERN L. REV. 1551 (2003). 
• Common Law and Economic Efficiency (with Edward Stringham), in 7 ENCYCLOPEDIA OF LAW AND ECONOMICS: THE PRODUCTION OF LEGAL RULES (2d ed., Francesco Parisi, ed., 2012). 
• Bruno Leoni's Legacy and Continued Relevance, 30(1) J. OF PRIVATE ENTERPRISE 131-41 (2015).
• Austrian Law and Economics and Efficiency in the Common Law (with Edward Stringham), in RESEARCH HANDBOOK ON AUSTRIAN LAW AND ECONOMICS 192 (Todd J. Zywicki and Peter J. Boettke, eds. 2017). 

The Loper Bright SCOTUS Decision (And the Gorsuch concurrence!)

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Have you ever wondered how common law rules and market prices both "emerge"? Inspired by the works of James Buchanan, F.A. Hayek, and Bruno Leoni, Donald Boudreaux explains how decentralized processes can lead to the emergence of effective norms, such as queuing and speeding rules, without the need for top-down legislation. We discuss the significance of individuals spending their own money versus others' and how these incentives impact societal outcomes, highlighting the deep wisdom embedded in traditionally evolved rules.

We also venture into the nuanced distinction between law and legislation, drawing on insights from Buchanan and Hayek. We elaborate on Buchanan's concept of "relatively absolute absolutes," and on Hayek’s emergence process, emphasizing the continuous generation of information through human action and preferences. Discover the natural process behind the emergence of common law, its role in establishing predictable rules, and the challenges presented by the unpredictable nature of parliamentary law.

Guest: Donald Boudreaux at George Mason University

Some Links: 

• Econtalk, Sept 30, 2024: “The Underrated Bruno Leoni”
• Econtalk, Dec 11, 2006:  "Law and Legislation"
• Michael Munger and Georg Vanberg, 2023, Contractarianism, Constitutionalism, and the Status Quo. Public Choice. 
• Michael Munger, 2023, “The Socialist Generation Debate,” AIER. 
• Quotes from Bruno Leoni on Cafe Hayek (a search, as suggested by Don Boudreaux) 

Book o’da’month: Bruno Leoni, FREEDOM AND THE LAW

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 @mungowitz