Thursday, 12 May 2011

Things you learn at 2am

It is widely assumed that Ronald Coase introduced the concept of "transaction costs" to economics in 1937, he just didn't use the term, and that the term was first used by Jacob Marschak in 1950. But, it seems, life and economics isn't that simple. For the record Coase wrote about "the cost of using the price mechanism".

So what I discovered at 2am was that Sir John Hicks wrote back in 1935 that,
The most obvious sort of friction, and undoubtedly one of the most important, is the cost of transferring assets from one form to another" (Hicks 1935: 6).
His friction looks a lot like our transaction cost. So Hicks was 5 years ahead of Coase.

As to the label, "transaction costs", Marschak did write,
"[...] the individual has exchanged one commodity against another (say 1 against 2), he had to sacrifice, in addition, positive amounts of at least one of the N commodities: 'the so called transaction cost' (in money paid to advertising agents or brokers, or in ones own leisure, etc.)" (Marschak, 1950: 162).
in 1950 but Tibor Scitovsky wrote in 1940,
One reason (for holding cash rather than profitable assets - annotation by the author) must be liquidity preference, another, perhaps equally important one, seems to be high transaction costs (brokerage charges, stamp duties, commissions, etc.) on long-term securities" (Scitovsky, 1940, 307).
So Scitovsky was 10 years ahead of Marschak.
  • Hicks J. R. 1935. A Suggestion for Simplifying the Theory of Money. Economica 2: 1-19.
  • Marschak, J. 1950. The Rationale for the Demand for Money and of "Money Illusion". Metroeconomica, 2: 71-100.
  • Scitovsky, T. 1940. A Study of Interest and Capital. Economica 7 (27): 293-317.

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