The Origin and Evolution of the Term “Transaction Cost”
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Publish date: 2006-12-31
Gospodarka Narodowa 2006;212(11-12):1–24
The article tracks the origin of the term “transaction cost” and shows changes in the meaning of the phrase over time. The author applies analysis methods commonly used in research into the history of economic ideas. The first part of the article, which shows how the term “transaction cost” originated and developed, refers to “intellectual history” and presents various forms of “elementary ideas,” focusing on the concept of “costly exchange” and “transaction cost.” The author argues that the idea of “costly exchange” has been known in the theory of economics practically since its beginnings, as exemplified by works by Aristotle, Smith and Menger. In the second part of the article, after tracking the origin of the term “transaction cost,” the author changes his analysis method in favor of an “institutional approach” and focuses on changes in the meaning of the term “transaction cost.” The analysis reveals that, contrary to what many researchers claim, the term “transaction cost” was first used in economic literature as early as 1940 by Tibor Scitovsky in his work A Study of Interest and Capital. Most economists addressing this matter in literature tend to believe that the term was first used by Jacob Marschak in 1950. The study also showed that initially the term “transaction cost” had a strictly specific meaning (as the cost of transferring capital assets, for example). With time, as new institutional economics developed, the term lost its limited meaning and became a more general category. The author concludes by observing that the many meanings of the term “transaction cost”—coupled with the lack of consensus among economists on the influence of transaction costs on economic effectiveness—explain why further research is needed into the role of transaction costs in the functioning of markets and enterprises.