The Answer Is Transaction Costs The Engineers of Exchange: Middlemen, Part Deux
Jul 8, 2025
Middlemen are crucial 'engineers of exchange,' connecting buyers and sellers who might otherwise never meet. Historically seen as parasites, they actually enhance market efficiency and promote beneficial trades. Interesting insights include the origins of the word 'monger' and R.A. Radford's POW camp study, showcasing how middlemen increased overall welfare. The discussion challenges common misconceptions, emphasizing that middlemen create value when they facilitate transactions, not just when they exploit price differences.
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Middlemen as Exchange Engineers
- Middlemen are essential "engineers of exchange," not parasites, as they connect buyers and sellers who might never find each other otherwise.
- They add value even without improving products by enabling beneficial transactions and expanding markets.
POW Padre's Trading Success
- A POW camp padre started with a simple tin of cheese and cigarettes and traded up to owning a full Red Cross parcel.
- He created wealth by facilitating trades that made all parties better off, illustrating middlemen's value.
Arbitrage's Market Role
- Middlemen perform arbitrage by exploiting price differences, which drives prices towards equilibrium.
- This process improves market efficiency and increases the number of beneficial exchanges.
