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Send us a text 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. • 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. 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

Send us a text 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. • 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 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

Send us a text 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_sdG6bCSmartEquip web site:  https://www.smartequip.com/schedule-demo/Announcement of Schuessler being (re)hired as President:  https://news.ararental.org/schuessler-appointed-president-of-smartequipWhy 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 @mungowitz

Send us a text 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 • Tabottle’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 Site Jassim Baqer on LinkedIn From 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 @mungowitz

Send us a text 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 reciprocity Mentioned in the podcast: Laura Williams on PineapplesPineapples in SwedenOren Cass on Adam SmithDan Klein's Law and Liberty piece on Oren Cass on Adam SmithIf 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

Send us a text 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 incentiveswhy Smith’s natural order inverts in Europethe physiocrats’ growth model and Smith’s critiqueSolow’s technology vs North’s institutions vs McCloskey’s ideasJoel Mokyr's synthesis and improvement (written BEFORE he Nobel'ed!)feudal constraints primogeniture and entail suppressing agriculturetowns as islands of order through charters and fixed rentsthe king–burgher alliance against baronsmerchants as improvers of land and capital risk-takerscommerce introducing liberty and good governmentSmith’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 @mungowitz

Send us a text 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 pick Some links: Workload modeling and "Little's Law"Little on Little's Law"Just In Time" inventory and manufacturingEdwards 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 @mungowitz

Send us a text 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. • 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 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

Send us a text 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. • 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.  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

Send us a text 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. • 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. 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

Send us a text 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 RajagopalanRichard Joseph and "Prebendal" Nigeria Douglass North and transaction costs/lock-inDouglass North on InstitutionsDenzau 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 AgesGuy Gavriel Kay A Brightness Long Ago  California's gigantic political theft of money for "High Speed Rail" 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

Send us a text 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. • 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. 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

Send us a text The ancient tradition of Il Palio in Siena showcases a complex system of strategic corruption, neighborhood rivalries, and high-stakes horse racing that has endured for centuries. This 90-second race around Siena's central piazza involves extensive bribery, intense negotiations, and centuries-old vendettas that make speed secondary to political maneuvering. • Horse assignments determined by lottery prevent wealthy neighborhoods from buying fastest horses but create opportunities for strategic corruption • Jockeys accept bribes up to €80,000 to impede rivals or assist allies, with reputation determining future employment • The "rincorsa" (starter horse) wields extraordinary power in determining when the race begins • Enforcement of bribe agreements relies on reputation, trust, and fear rather than formal contracts • Coming in second place is considered worse than finishing last, leading to public ridicule that can last generations • Neighborhood identities and rivalries date back to medieval times, with memories of betrayals lasting decades Book o'da'week:  Okay, it's a film.  But it's great! Book o da week:  Il Palio documentary, 2015. Cosimo Spender, director and writer. https://www.imdb.com/title/tt3669520/  If you enjoy learning about the economics of unusual institutions, join us next week for the third installment of our Adam Smith podcast series with Adam Smith Works. 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

Send us a text Mike Munger explores insurance economics through the lens of transaction costs and risk management, culminating in an amusing case study about "bat-in-mouth disease." Insurance transfers risk from individuals to larger pools, reducing the expected variance of outcomesThe fair price of insurance equals expected value (probability × potential loss) plus transaction costsInformation asymmetry, subjective risk valuation, and strategic behavior complicate insurance marketsInsurance faces two major challenges: adverse selection (who buys insurance) and moral hazard (behavior changes after getting insurance)Deductibles and co-pays help align incentives between insurers and insuredInsurance history dates back 5,000 years to ancient China, Mesopotamia, Greece, and RomeThe "bat-in-mouth disease" case study shows what happens when someone tries to purchase insurance after an incidentTransaction costs explain why dogs sometimes stop climbing stairs and why freezing credit cards--ie, transaction costs--might prevent impulse spending. The piano player in a brothel story, and its history.The book o'da'month is Daniel Flynn, The Man Who Invented Conservatism.  Bat in mouth story:  https://www.nbcnews.com/news/us-news/bat-flies-womans-mouth-arizona-costing-nearly-21000-medical-bills-rcna222463 Some background on insurance: Kenneth Arrow on the Uncertainty & Welfare Economics of Medical CareAnja Shortland on Kidnap: Inside the Ransom Business"Piano player in a brothel" story origins: https://www.goodreads.com/quotes/93559-my-choice-early-in-life-was-either-to-be-ahttps://barrypopik.com/blog/dont_tell_my_mother_im_a_banker_she_thinks_i_play_piano_in_a_whorehouse Daniel Flynn book:  The Man Who Invented Conservatism 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

Send us a text Transaction costs provide the key to understanding Adam Smith's complete philosophical system and how his two great works form an integrated whole.  • Smith's two essential claims: humans desire to learn proper behavior and have an innate propensity to truck, barter, and exchange • Sympathy in Smith's view means synchronizing feelings with others—not perfect emotional matching but sufficient "concords" for social harmony • Three core principles guide proper behavior: justice (respecting others' person, property, and promises), beneficence (proper use of what's ours), and prudence (sacrificing present comfort for future well-being) • Self-command turns virtuous intentions into actual proper behavior • Four sources of moral judgment: motive, reaction, convention, and consequence • As societies scale up, we move from moral community (acting from love) to moral order (following rules from their utility) • Smith's "Chinese earthquake" example anticipates the modern trolley problem by revealing how moral agency affects our decisions • The "man of system" tries to impose ideal plans without regard for human nature or gradual change • Smith's egalitarian views positioned economics against slavery and hierarchical social structures Also posted, with resources for teaching and learning, at Adam Smith Works, thanks to Amy Willis.  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